Impact of Sealing the De Minimis Exception on Shoppers Explained
The Trump administration has closed the "de minimis" loophole, which previously allowed duty-free import of goods valued at less than $800. This decision, made last year, is now causing ripples in the U.S. market, affecting both retailers and consumers.
Under the new policy, packages previously shipped in five to 10 days may take as long as 20 days to reach customers. The closure of the de minimis loophole is expected to delay low-cost shipments from overseas, especially over the coming months. This delay is due to the additional compliance costs faced by retailers, which are likely to be passed along to consumers.
The closure of the de minimis loophole extends the policy to imports from all other countries, not just mainland China and Hong Kong, where the loophole expired in May. Now, such imports will face tariffs based on the relevant rates for a given country of origin or product. Tariffs for low-cost imports brought via delivery services like FedEx and DHS will range from 10% to 50%.
Analysts expect the closure of the de minimis loophole to raise prices for consumers due to additional tariffs and transportation costs. Raymond Robertson, professor for trade, economics, and public policy at Texas A&M University, stated that the new policy will significantly raise the transportation cost on top of the cost of the tariffs, which will ultimately raise prices for consumers.
Suppliers may swallow some of the added cost by selling their goods at lower wholesale prices, but such relief is likely to be minimal. In the case of imports shipped directly to customers, foreign retailers have a choice of whether to eat the added cost or slap it onto the bill paid by shoppers. E-commerce companies Shein and Temu warned of price increases after the May expiration.
The administrative burden for foreign postal services under the new policy is tremendous, according to Henry Jin, a professor of supply chain management at Miami University. Postal service operators in more than 30 countries, including significant trade partners like India, Mexico, and Japan, have limited or halted shipments to the U.S. in anticipation of the policy adjustment.
The move is predicted to add up to $10 billion in tax revenue. However, it is also expected to impact small businesses and consumers, who may face higher prices due to the additional tariffs and transportation costs. The exact time when postal services in over 30 countries, including major trading partners like India, Mexico, and Japan, began anticipating the policy change by pre-calculating shipping costs for packages to the USA due to the closure of the de minimis loophole is July 1, 2023.
Peter Navarro, senior counselor to the president for trade and manufacturing, stated that the move would help "save thousands of American lives by restricting the flow of narcotics and other dangerous and prohibited items." However, the impact on the economy and consumers remains a topic of ongoing discussion and concern. The closure of the de minimis loophole represents a significant shift in U.S. trade policy, and its long-term effects are yet to be fully understood.
