Closure of US Package Duty Loophole to Impact Prices of Popular Retailers

A decision by President Trump to close a duty-free loophole for low-value packages entering the US is expected to drive up prices on online platforms such as Shein and Temu, which have thrived due to this exemption. Critics highlight the potential implications on consumer costs and the effectiveness of such policy changes in curbing illegal imports.

In a significant policy shift, President Donald Trump announced the closure of a long-standing duty-free loophole, known as the "de minimis" exemption, which has allowed low-value packages to enter the United States without incurring import duties or taxes. This decision is anticipated to increase costs for US customers of popular Chinese online retailers like Shein and Temu, who have significantly benefited from the exemption in recent years.

The "de minimis" rule, established in 1938, originally enabled American tourists to return with small souvenirs without the hassle of customs declarations. Over the decades, this rule evolved and permitted packages worth less than $800 to be shipped into the US without additional charges, constituting over 90% of all cargo entering the country, according to Customs and Border Patrol (CBP).

Supporters of the exemption praise it for streamlining the customs process and enabling consumers to access affordable products. However, both Trump and Biden administrations have expressed concerns that the loophole has facilitated illegal activities, including the importation of dangerous substances like fentanyl. In response to these challenges, the recent executive order will subject packages from mainland China and Hong Kong to import duties starting from May 2nd.

As a result of these changes, Shein and Temu have announced plans to adjust their pricing. They stated that recent global trade rule changes and tariffs have already led to increases in operational expenses, hinting that US consumers should expect higher prices in the near future.

The rationale for closing the loophole echoes last year's Biden administration proposals to combat perceived "abuse" of the system. Authorities emphasized that the surge in de minimis shipments complicates efforts to block illicit goods, leading to a crackdown that is part of Trump’s broader economic strategy against China. Since resuming office, Trump has implemented various tariffs on Chinese imports, some potentially reaching up to 245%.

This policy shift is not unique to the United States; similar reviews of low-value imports are taking place in the UK and European Union, potentially leading to rising prices across these regions as well. Critics, however, argue that eliminating the de minimis exemption may not effectively address the problems of illegal drug smuggling and could further burden US border officials already stretched thin in their efforts to curb drug trafficking.

As the landscape of online shopping evolves, with potential price increases looming for consumers, experts and businesses alike continue to debate the broader implications of these regulatory changes on trade, consumer choice, and illegal networks.