President Trump’s decision to impose hefty tariffs on Canada, Mexico and China included a little-noticed but significant change to how online purchases will be taxed when they enter the United States.
One provision of Mr. Trump’s executive order will increase costs for more than 80 percent of U.S. e-commerce imports. The decision could shift the landscape for online sales from Chinese vendors like Shein and Temu that have swiftly expanded their market share by sending cheap goods into the United States.
The president’s order erased a workaround that many companies have taken advantage of in recent years, particularly since Mr. Trump imposed tariffs on Chinese products in his first term. The provision, known as the de minimis exception, allowed certain products that were sent directly to consumers from online platforms to come into the United States without facing tariffs, a huge tax advantage.
This obscure provision of trade law underpins major business models. Shein, Temu and many sellers on Amazon have used the de minimis exemption to bypass tariffs. The exemption allows packages to be shipped from other countries without paying tariffs, as long as the shipments do not exceed $800 per recipient per day.
But critics say the de minimis measure has also helped fuel an American drug crisis. Importers who use de minimis do not have to provide as much information to U.S. Customs and Border Protection as they do with other packages, for ease of processing. That means drugs and the precursors used to make them could be more easily shipped into the United States without the government catching them.
De minimis stems from a century-old trade law that was originally intended for shipments that would be too trivial to merit the attention of customs. But the use of this provision has exploded in popularity.
A report released last week by the Congressional Research Service found that Chinese exports of low-value packages soared to $66 billion in 2023 from $5.3 billion in 2018. While Mr. Trump’s executive order applies to China, Canada and Mexico, China is by far the biggest source for such packages. The country is responsible for about two-thirds of them, sending more than all other countries combined, according to federal statistics.
The carveout has given an advantage to Chinese companies like Shein and Temu, which ship millions of low-value packages directly to consumers’ doorsteps each year. That ability to bypass tariffs has helped Shein and Temu to offer cheap prices, boosting their popularity. According to the Congressional Research Service, the two companies together hold about 17 percent of the discount e-commerce market in the United States for fast fashion, toys and other consumer goods.
That has angered traditional retailers, which typically bring big bulk shipments to their warehouses that they must pay tariffs for. Retailers like Walmart and Amazon had been facing pressure to shift more toward Temu and Shein’s model of shipping directly to consumers from China, which would have meant they were creating fewer jobs in U.S. distribution centers.
Express delivery companies like FedEx and UPS that fly many of the packages across the Pacific from China have also spoken out in favor of preserving the de minimis exception.
But the Trump administration is focused on targeting de minimis for another reason: its apparent ties to the fentanyl trade. A White House official said in a call with a reporter on Saturday that the provision was causing the United States to lose a tremendous amount of tariff revenue and also impeding the efforts of customs officials to catch fentanyl shipments arriving in packages.
A group of law enforcement, trade and drug prevention groups sent a letter to Mr. Trump last month asking him to end the trade exception, saying it was “flooding the United States with fentanyl, fentanyl precursors, pill presses and other illicit goods from China and other countries.”
The issue has percolated for years, but efforts to limit or end the provision have recently gained momentum. Lawmakers have been considering legislation to the de minimis rule and the Biden administration proposed changes last year that would narrow the exception when it came to China, but they have not yet taken effect.
Congressional proposals to change de minimis would have preserved an exemption for international travelers who bring up to $800 worth of overseas purchases into the United States in their luggage, allowing them to avoid making customs declarations and paying duties at American airports and other points of entry to the United States.
By contrast, Mr. Trump’s executive orders made no mention of preserving the de minimis exemption for people entering the United States. Depending on how customs officials handle it, that could complicate entry to the United States starting on Tuesday for people traveling from Canada, Mexico or China.
Timothy C. Brightbill, a lawyer at Wiley Rein, said the change made by the Trump administration would “have broad impacts on many businesses and industries.” He said a variety of importing industries had “abused” de minimis provisions, and eliminating the loophole would be consistent with the president’s goal of addressing fentanyl shipments.
China’s Ministry of Commerce had no response on Monday to questions about Mr. Trump’s decision. Shein and Temu, also did not respond to a request for comment. A Chinese embassy spokesperson said that China firmly opposed the imposition of tariffs, and that there is no winner in a trade war.
Congress raised the de minimis exemption in 2016 to $800 from $200 in response to complaints from American customs officials that they were already struggling then to examine all the packages coming in. With the increase in the exemption, the number of low-value packages sent to the United States each year has soared.
Since many Americans purchase such packages, the change will also come with an economic cost. Research has found that eliminating the de minimis exception entirely would result in costs of $11 billion to $13 billion for American consumers and disproportionately hurt poorer and minority households.
Amit Khandelwal, an economist at Yale University who is an author of a study on the trade provision, said his research found that lower-income Americans spent a disproportionate amount on de minimis shipments and imports from China compared with wealthier consumers.
”Lower-income individuals will be hurt more,” he said. “Domestic retailers, domestic producers, they obviously would benefit from taxing those imports, but there is a cost.”
Ending the de minimis exception will result in one other interesting change: The official figures for U.S. trade with China, and the U.S. trade deficit, will immediately rise. De minimis shipments do not appear in the typical trade data that is released by the census.
The change will mean that perhaps as much as $100 billion of trade will no longer be missing from official statistics, said Brad W. Setser, an economist at the Council on Foreign Relations. “It brings shadow trade back out of the shadows.”