US Closes Loophole for Low-Value Imports, Increasing Prices for Shein and Temu

The recent closure of the 'de minimis' exemption has raised concerns over the implications for US consumers and online shopping dynamics.

A duty-free loophole allowing for low-value goods to be shipped to the US without duties is set to be closed by Donald Trump, which will likely lead to price hikes for customers of popular Chinese retailers Shein and Temu. This "de minimis" exemption, applicable to packages valued under $800, has allowed these companies to dominate the market by offering goods with less tax burden. While supporters argue it streamlines customs, both Trump and previous President Joe Biden have asserted that it fosters illegal imports and undermines American businesses.

The origin of the de minimis rule stems from a 1938 measure facilitating the return of souvenirs from abroad without customs declarations. In modern context, it allows retailers like Shein and Temu to deliver goods at ultra-low prices, appealing to millions of US shoppers. Following the recent announcement, both companies acknowledged rising operational costs due to trade rule changes and hinted at impending price adjustments starting April 25.

Trump's recent moves echo earlier efforts made in February when he briefly paused the loophole's benefits, which caused chaos within delivery systems and prompted the US Postal Service to halt packages from China and Hong Kong. The motivation behind the closing is tied to addressing the influx of illegal substances, notably synthetic opioids harming US citizens. The new executive order indicates that from May 2, packages from these regions will be taxed, with an increase following thereafter.

In context, the closure of this exemption comes amid a broader objective to combat smuggling, bolstered by rising volumes of such shipments to the US, which have surged from 140 million to over one billion annually. This shift poses an additional burden on customs authorities, which are grappling with limited resources.

Online shoppers may already start feeling the effects of increased costs as retailers anticipate the operational expenses associated with the pending regulations. It's estimated that abolishing the exemption could generate an additional $8 billion to $30 billion burden ultimately passed to consumers.

The UK and European Union also monitor similar exemptions that could be similarly affected, indicating a trend where online prices could rise as countries reassess their import tax practices. Experts suggest that the effectiveness of such adjustments in curbing illegal imports remains debatable, given the complexities of border controls.

As the changes take effect, consumers must brace for potential price changes and navigate the evolving landscape of international online shopping and trade.