How Trump’s order to end a tariff loophole could impact Shein and Temu

A notice to customers dazzled by the low-priced products on Chinese shopping apps: The days of getting trendy clothing, tools, and gag gifts that cost less than lunch delivered to your door in 10 days are probably numbered.

President Donald Trump is ending a little-known but widely used exemption that has allowed as many as 4 million low-value parcels—most of them originating in China—to arrive in the U.S. every day tax-free.

An executive order the president signed Wednesday will eliminate the “de minimis provision” for goods from China and Hong Kong on May 2. The tax exemption, which applies to packages valued at $800 or less, has helped China-founded e-commerce companies like Shein and Temu thrive while cutting into the U.S. retail market.

“Shoppers had a full array of product and options of timing,” Marshal Cohen, chief retail adviser at market research firm Circana, said. “Now they’re going to have a limited array of options and timing: So you can still buy this product, but you may have to wait three or four weeks.”

U.S. politicians, law enforcement agencies, and business groups have described the long-standing policy as a trade loophole that gave inexpensive Chinese goods an advantage and served as a portal for illicit drugs and counterfeits to enter the country.

The sweeping tariffs Trump announced on Wednesday also aim to end the duty-free exception for all imported goods worth less than $800, but only when the U.S. government has the personnel in place to process parcels from every country.

What will be the effect on prices and shipping times?

A White House fact sheet said small packages of Chinese products sent through the international postal network will be subject to a duty rate of either 30% of their value or $25 per item, an amount that will increase to $50 per item after June 1.

Commercial carriers such as FedEx and UPS will be required to report shipment details and remit the appropriate duties to U.S. Customs and Border Protection, according to the White House. After Trump’s latest round of tariffs, the tariff rate for Chinese products will be at least 54%.

Supporters of the de minimis exception have argued that its elimination would drive up costs and hurt low-income consumers and small businesses.

The tariff costs threaten to deal a blow to the U.S. operations of companies like Shein and Temu, which rapidly expanded in the U.S. using the de minimis provision to deliver ultra-cheap fast-fashion items from China.

However, it’s unclear what impact the loss of the tax exemption will have on the two online retailers, as well as on American companies like Amazon and Walmart, whose platforms include virtual marketplaces where international sellers offer products.

Shein and Temu already have been building warehouses in the U.S. so they could get orders to U.S. shoppers more quickly. Shein recently opened a fulfillment and logistics hub in the Seattle area. Neither company could be reached for comment Thursday.

Ram Ben Tzion, chief executive officer of the digital vetting platform Publican, said he expected the companies to “be forced to rethink their business strategy and possibly explore opting out of the U.S. market.”

In an emailed statement to AP, FedEx said it would support its customers to adapt to the new regulatory requirements and said it would be important for shippers to have “paperwork completed correctly ahead of pick-up” for shipments to move smoothly.

Hilton Beckham, an assistant commissioner of the U.S. CBP, said the federal agency was ready to implement the latest tariffs.

“Our automated systems are fully updated to capture, assess, and administer all new duties, and clear guidance will be provided to support uniform enforcement across the nation,” Beckham said.

Ben Tzion, of Publican, said he would “highly doubt” the U.S. government was ready to process the huge number of low-value shipments to be taxed starting next month.

The Hong Kong government said the Hongkong Post would “temporarily maintain” postal services to the U.S through May 2 but “will not collect any so-called tariffs on behalf of the U.S. authorities.”

What is the de minimis provision?

Introduced in 1938, the de minimis exception was intended to facilitate the flow of small packages valued at no more than $5, the equivalent of about $109 today. The threshold increased to $200 in 1994 and $800 in 2016. But the rapid rise of cross-border e-commerce, driven by China, has challenged the intent of the decades-old customs exception rule.

Chinese exports of low-value packages soared to $66 billion in 2023, up from $5.3 billion in 2018, according to a February report by the Congressional Research Service. And the U.S. market has been a major destination.

The Chinese government, which sees cross-border e-commerce as a critical part of its foreign trade, has introduced favorable policies, including financial support and infrastructure building, to foster its growth.

Former President Joe Biden proposed a rule last year that said foreign companies can’t avoid tariffs simply by shipping goods that they claim to be worth $800 or less. Trump tried in February to end the exception but his initial order was called off within days when it appeared the U.S. was not prepared to process and collect tariffs on the millions of parcels.

U.S. Representative Rosa L. DeLauro, a Democrat from Connecticut, said she was pleased Trump acted a second time to eliminate the rule.

“For too long, this customs loophole has let foreign exporters flood our market with cheap goods and helped drug traffickers move fentanyl past our borders—resulting in factory closures, job losses, and deaths,” DeLauro said.

An explosion of cheap goods

In 2023, for the first time, more than 1 billion such packages came through U.S. customs, up from 134 million in 2015. By the end of last year, CBP said it was processing about 4 million small shipments a day.

The cheap prices and increasing popularity of Shein and Temu squeezed fast-fashion retailers like Forever 21 and H&M. Forever 21 blamed the tax exemption in part for its decision to file for bankruptcy last month and close its U.S. stores.

“We have been unable to find a sustainable path forward, given competition from foreign fast-fashion companies, which have been able to take advantage of the de minimis exemption to undercut our brand on pricing and margin,” CFO Brad Sell said in a statement.

Meanwhile, Amazon launched late last year a low-cost online storefront featuring electronics, apparel, and other products priced under $20, in an apparent effort to compete with Temu and Shein. Amazon shipped the products to U.S. customers from a warehouse it operates in China, according to documentation the company provided to sellers.

—By Anne D’Innocenzio and Didi Tang