US tariff exemption for small orders ends Friday

An executive order the Republican signed last month eliminates a customs exemption for international shipments worth $800 or less starting Friday, nearly two years earlier than the deadline set in the tax cuts and spending law approved by Congress.

Though the president previously ended the de minimis rule for inexpensive items sent from China and Hong Kong, having to pay import taxes on small parcels from everywhere else likely will be a big change for some small businesses and online shoppers.

Purchases that previously entered the U.S. without needing to clear customs will require vetting and be subject to their origin country's applicable tariff rate, which can range from 10% to 50%. For the next six months, carriers handling orders sent through the global mail network also can choose a flat duty of $80 to $200 per package instead of the value-based rate.

In response, the national postal services of more than a dozen countries said they would temporarily suspend sending some or most U.S.-bound packages due to confusion over processing and payment requirements.

Critics call de minimis rule a loophole

The Trump administration says the exemption became a loophole that foreign businesses exploit to evade tariffs and criminals use to get drugs, counterfeit products and other contraband into the U.S. Former President Joe Biden and members of Congress also discussed the issue.

Other countries have similar exemptions, but the threshold is usually lower. For example, $175 is the value limit in the 20 European Union countries that use the euro as their official currency. The U.K. allows foreign businesses to send parcels worth up to $182 without incurring tariff charges.

In the U.S., the de minimis — Latin for lacking significance or importance — exemption started in 1938 as a way to save the federal government the time and expense of collecting duties on imported goods with a retail value of $1 or less. U.S. lawmakers eventually increased the eligibility cutoff to $800 in 2015, according to the Congressional Research Service.

A total of 1.36 billion packages with a combined value of $64.6 billion reached the U.S. last year, compared to 134 million packages sent under the exemption in 2015, the U.S. Customs and Border Protection agency reported.

About 60% of the 2024 shipments came from China and Hong Kong, according to an analysis logistics firm Flexport prepared based on U.S. government data. Multiple countries and regions accounted for the remainder, including Canada, Mexico, the European Union, India and Vietnam.

Business owners anticipate higher costs

Proponents of limiting the exemption argue that it served as a way for China-founded retail platforms like Temu and Shein to flood the U.S. with low-priced goods. The National Council of Textile Organizations said ending the exemption would help close a "backdoor pipeline for cheap, subsidized, and often illegal, toxic and unethical imports."

However, some smaller American companies that rely on imported products and materials benefited from the exemption too.

Shannen Knight imports hard-to-find sports goggles and glasses as the owner of A Sight For Sport Eyes, her online store and shop in West Linn, Oregon. She routinely received shipments from the U.K., the Netherlands and Italy that fell under the de minimis dollar cutoff.

Knight estimated that she would need to raise the retail price of the rugby goggles she gets from Italy, a specialty item without strong prospects for stateside production, by 50%.

Kristin Trainor is worried the end of de minimis will mean the end of Diesel and Lulu's, her 3-year-old boutique in Avon, Connecticut. More than 70% of the women's clothes and accessories she stocks comes from small fashion houses in France, Italy and Spain. 

She estimates a simple Italian linen sundress that cost $30 wholesale at the beginning of the year will rise to $43 next month.

After a corporate career, Trainor opened the store to have more time with her 9-year-old son and her 91-year old father. Raising the boutique's prices to absorb part of the import charges would help offset higher shipping and logistics costs, but Trainor worries her customers will balk at higher prices.

"At this point," she said, "I am leaning more and more towards closing the boutique, sadly."

Ken Huening started CoverSeal, which makes and sells protective covers for cars, motorcycles, grills and patio furniture, in 2020. The company is based in Los Gatos, California, and the covers are manufactured in Mexico and China. When a customer places an order, it ships from Mexico.

Though a trade agreement that took effect in 2020 made most goods from Mexico and Canada exempt from country-specific U.S. tariffs, the withdrawal of the de minimis rule applies to all countries.

Huening said he'll have to raise prices or end free shipping now that his products will be taxed when they are sent from Mexico to U.S. customers. He's looked at setting up a U.S. production and logistics network but says domestic sewing facilities and textile manufacturers do not exist for the engineered fabric used in CoverSeal's products.

"We are often asked why we don't just establish a U.S. supply chain," he said. "It is not possible in the short term. By the time the infrastructure is established, many companies and small businesses will be out of business."