De minimis: US small parcels loophole closes pushing up prices for Shein and Temu

President Donald Trump’s closure of a duty-free gap for low-value deals has increased costs for US clients of companies like Shein and Temu.

The so-called “de minimis” exemption allowed the Taiwanese website retailers to sell and deliver low-value goods directly to the US without having to pay responsibilities or transfer fees.

The loophole, which was applied to packages less than$ 800 ( £600 ), is said to have simplified the customs process.

However, both Trump and Joe Biden, his predecessor, claimed it harmed British businesses and smuggled improper goods, including drugs.

De minimis, a Spanish word, loosely translated to” of the smallest,” in English.

In this environment, it makes reference to a US business law passed by Congress in 1938 to avoid having to pay only a small amount of import taxes.

After a number of price increases, the threshold was reinstated in the twenty-first century, allowing retailers to ship items valued under$ 800 to US buyers without having to pay any tasks or taxes.

More than 90 % of all the cargo entering the US was shipped under the exemption, according to Customs and Border Patrol ( CBP ) of the nation.

Shein and Temu, two Chinese online stores, benefited greatly from the flaw.

With advertising blitzes that showcased their ultra-low costs, both systems attracted millions of US consumers.

And that is how they were able to make those deals so cheaply thanks to the de minimis provision.

Shein and Temu did not respond to a post request from the BBC right away.

The rival firms claimed last month that they had seen running costs rise “due to recent shifts in global trade rules and tariffs,” and that they would create “price adjustments” starting on April 25 in nearly parallel statements.

Trump unveiled the hole in February.

As traditions inspectors, distribution companies, and online merchants struggled to adapt to such a significant shift on short notice, the suspension was immediately put on hold.

The US Postal Service briefly stopped accepting packages from Hong Kong and mainland China during the first suspension of the deduction.

The executive order announcing the most recent action stated that it was intended to stop the export of synthetic drugs like morphine.

It claimed that some Chinese shippers” to utilize the de minimis deduction” by concealing unlawful ingredients in low-value packages.

” These pharmaceuticals kill tens of thousands of Americans every year, including 75, 000 deaths per year attributed to fentanyl alone,” the statement continued.

The concept is certainly novel. The Biden presidency proposed regulations last year to prevent “abuse” of the deduction.

It said that” the growing amount of de minimis supplies makes it increasingly difficult to target and stop illegal or unsafe supplies.”

The action is in line with Trump’s laws of limiting imports from China.

Trump has imposed fees of up to 145 % on Chinese goods since regaining control of the White House in January. His administration claimed in April that the taxes on some Chinese products may reach 245 % when new taxes are added to already existing ones.

As the number of items entering the US as a result of the hole, which was 140 million a decade ago, to more than one billion next year, US officials have also blamed the success of companies like Temu and Shein for putting strain on border officials.

Packages from mainland China and Hong Kong that are up to$ 800 now have a 120 % tax rate or are subject to a flat fee. The cost initially amounted to$ 100, but it will go up to$ 200 starting in June.

US users saw price increases even before these items were content to buy taxes.

Due to “recent shifts in global business rules and levies,” Shein and Temu increased costs for their US consumers ahead of the 2 May date.

A right-leaning plan group, the American Action Forum, estimated last year that the elimination of the exemption may result in”$ 8 billion to$ 30 billion in additional monthly costs that would ultimately be passed on to consumers.”

Related regulations in the UK and the European Union have also been applied to Chinese online stores.

The UK has announced a review of low-value goods entering the nation in a move that echoes the US activity.

The current law in the UK allows international retailers to deliver packages worth less than £135 without paying import duties.

The low products are “undermining the British High Street and American stores,” according to Chancellor Rachel Reeves.

Additionally, the European Union has suggested that no longer be able to exempt items worth less than €150 ( £127.50,$ 169.35 ).

Which means that prices was rapidly increase for UK and EU customers.

Items that were granted the provision were also subject to the same inspection process as other products, including being checked for illegal ingredients. Additionally, the majority of synthetic drugs enter the country through the border with Mexico, according to authorities.

Some researchers believe that repealing the deduction won’t do much to stop illicit drugs and won’t address the issues that US companies face.

There are also fears that the shift will require more time for US border representatives, who are already stretched as they work to stop drug trafficking.

The National Foreign Trade Council ( NFTC ), a pro-open trade organization, claims that the removal of the de minimis exemption would” shift the CBP’s focus away from the border, where a majority of illegal substances and products are entering the country.”

According to the report, “CBP would need to employ and train new employees, costing the company millions of dollars” or force agents to leave the already burdened southern border.