Category: e-commerce

Starting Friday, the Trump administration is shelving a nearly century-old tax loophole that saved companies from paying tens of billions of dollars in fees on cheap imports, most of which come from China. The move stems from the sweeping tariffs President Donald Trump announced last month on most U.S. trading partners, and it will affect businesses from Etsy sellers and family-run footwear companies to e-commerce behemoths.

In fiscal 2022, 83 percent of all U.S. e-commerce imports used the “de minimis” loophole, according to a government report.

Trump initially did away with the de minimis exemption in February, but the move quickly overwhelmed U.S. Customs and Border Protection workers and prompted the U.S. Postal Service to briefly suspend inbound shipments from China and Hong Kong. The administration then reinstated the loophole to allow the Commerce Department to craft a way to collect the levy. The agency now has “adequate systems … in place to collect tariff revenue” on these low-value goods, the White House had said.

According to an executive order last month, imports from China that previously qualified for the exemption now face a duty of at least 145 percent if they arrive via commercial shipping. Shipments through the Postal Service are subject to a fee of $100 per package — rising to $200 next month — or 120 percent of the import value.

“If a retailer is really reliant on manufacturing or shipping directly from China, this is going to be really painful for them,” Jess Meher, a senior vice president at the returns-management software company Loop, told The Post.

Ultimately, such costs generally filter down to consumers. Here’s why.

What is the de minimis exception?

In Latin, “de minimis” means something that is too small or insignificant to be considered. The rule, passed by Congress in the 1930s and amended over the years, spares merchandise worth less than $800 from import taxes.

E-commerce sites Shein and Temu have thrived off this loophole, allowing them to avoid paying billions of dollars in duties. Some trade experts contend that these retailers have fueled a surge in imports since fiscal 2015, when the number of de minimis entries hovered at about 139 million, according to CBP data. Between that fiscal year and 2023, the number of de minimis exceptions swelled over 600 percent. By 2024, they had surged to 1.36 billion, worth about $66 billion, said Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, a nonpartisan think tank based in Washington.

While those volumes represent a mere fraction of U.S. imports — now totaling more than $3 trillion annually — they help boost margins for small- to medium-size businesses in the United States, said Maggie Barnett, chief executive of LVK, a third-party logistics company with warehouses in the U.S. and Canada.

Many of these companies have about “30 percent of their revenue in retail, but the other 70 percent is leveraging the de minimis,” she said. If they’re not shipping directly from China, they often ship their items in bulk from manufacturers in China or Southeast Asia to warehouses in Canada or Mexico and “ship them over [to the U.S.] one by one when the orders come in,” she said.

So far, only items originating from China are prohibited from using the de minimis loophole, according to Trump’s executive order.

What does this have to do with Trump’s tariffs?

Killing the de minimis loophole is part of Trump’s broader strategy to boost domestic production. On April 2, he ordered a 10 percent tariff on all U.S. imports starting April 5, as well as additional taxes that would bring levies of as much as 50 percent on goods from certain countries starting April 9. Since then, Trump said he was pausing and lowering tariffs on goods from most nations for 90 days while simultaneously imposing a minimum tariff of 145 percent on all Chinese imports. Beijing responded with a 125 percent blanket levy.

Opposition to the de minimis loophole largely has been bipartisan, with some critics arguing that it has enabled illicit drugs, such as fentanyl, to be sent through the mail into the U.S. President Joe Biden, in his final days in office, issued limitations on the loophole, excluding certain imports from circumventing tariffs.

How will this affect my orders from Shein, Temu and Amazon Haul?

Without de minimis, prices on those orders could rise much as 30 percent, costing consumers about $22 billion annually, Hufbauer said.

A good chunk of that applies to Temu and Shein orders, which are responsible for an estimated 30 percent of packages shipped into the U.S. each day, according to a report from the Peterson Institute. Nearly half of all de minimis shipments originate in China, according to a report by House Republicans.

In a statement Friday, Temu said it is moving to a “local fulfillment model,” with U.S. orders handled by sellers in the U.S.

The vast majority of products for sale on Temu now have a green “local” sticker, indicating that they are already located in the U.S. at purchase. Shoppers took to social media this week to lament that a slew of items had been removed from their Temu shopping carts because they did not have that “local” tag. At one point last month, the company also displayed tariff-related costs to consumers by adding a charge at checkout for any imported item.

Shortly after Trump’s executive order ending de minimis, Shein said it would start making price adjustments on April 25. The retailer doesn’t break down import costs at checkout, but its website displays a message telling consumers that all tariff costs get included in the price they pay.

Also affected is Amazon, which launched its own platform in November called Haul that similarly sells cheap goods directly from China. Trump chastised the e-commerce giant this week after a news report said it planned to display tariff costs to consumers. An Amazon spokesperson previously told The Washington Post that the team that runs Haul “has considered listing import charges on certain products” but later added that “this was never approved and is not going to happen.”

With the tax loophole going away, brands that rely on sourcing low-cost goods, especially from China, “are going to have a really tough time because their margins are already really thin,” Meher said.

Shein, Temu and Amazon did not immediately respond to The Washington Post’s request for comment. (Amazon founder Jeff Bezos owns The Post.)

Who are the winners and losers?

American companies that haven’t been able to take advantage of the exemption could be the biggest winners, UBS analyst Jay Sole wrote in a February note after Trump initially revoked the loophole. He pointed to U.S. “fast fashion” retailers, specialty retailers, off-price retailers, department stores and kids’ clothing companies that have lost customers to these foreign e-commerce sites.

The flip side is that budget-seeking consumers, who have turned to these companies for cheap apparel and housewares, will bear the brunt of any price changes, Hufbauer said.

The same goes for small- and medium-size businesses, Barnett said. They have less cash on hand, less flexibility on inventory, fewer options to diversify their supply chain and less leverage to negotiate fair prices with major retailers selling their product.

“It’s going to be hard for those medium-sized businesses to maintain in this chaotic environment,” she said.