A longstanding U.S. tax exemption for global retailers comes to an end on Friday: the de minimis exemption, which has allowed packages under $800 to enter the U.S. free of taxes, duties and fees.
Over one billion shipments entered the country under the de minimis exemption last year alone, according to U.S. Customs and Border Protection. The bulk of de minimis shipments have come from China, which had its exemption for imports end in May.
“China accounted for about 60% of all the shipments that went in under this de minimis exemption,” said Josh Stillwagon, chair of the Economics Department at Babson College. “If you look at Temu, for example, the shipments on low benefit items dropped pretty dramatically. Even cargo freight from Asia to North America in general dropped pretty dramatically in May after this exemption went away.”
The up-to-date move by the Trump administration has triggered a wave of temporary shipping suspensions by the European postal service as they prepare to comply with the new requirements.
If you’ve ordered something online from overseas, you might have benefited from a trade rule that lets small packages into the U.S. free of any taxes or fees. But a brief pause in that loophole, the de minimis exemption, gave us a look at what could happen if that exemption goes away and how tariffs could shake up the industry.
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Products will get the tariff and duty associated with their country of origin. Companies must pay import taxes on these shipments, a cost that could eventually be passed down to customers.
“It’ll differ by good, but just like with tariffs, there will ultimately be some effect,” explained Stillwagon. “But they have stocked up on inventory quite a lot in anticipation of these expiring deadlines. So, I think we still haven’t seen the full impact of the tariffs. And then just like that, we won’t see the full effect of this really for maybe a couple quarters even, depending on how much inventory there is.”
Stillwagon said that, any time there is a big policy change, there’s going to be some unintended consequences that may arise.
“If you think about what happened with Japan’s trade offer, for example – today Japanese cars are subject to one tariff, but actually U.S. producers are paying an even higher tariff on steel,” said Stillwagon. “So, it does slant the competitive landscape a little bit here in ways that really weren’t intended because it’s so complex when you’re making individual country negotiations and individual good negotiations. I think there’s going to be policies implemented and then reactions to that, and I think the uncertainty will stay for a while.”
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