In a significant policy shift, President Donald Trump issued an executive order this week that will close the “de minimis” loophole, a trade provision that has allowed foreign e-commerce giants to ship low-value packages to U.S. consumers without incurring import duties or being subject to stringent customs scrutiny. This move, which comes amid a larger tariffs-focused effort by the Trump Administration, is poised to disrupt the operations of the likes of Shein and Temu, ultra-fast-fashion retailers that have leveraged this exemption to offer low-cost products directly to American shoppers.
A Bit of Background: The de minimis rule permits goods valued under $800 to enter the United States duty-free, bypassing extensive customs inspections and import taxes. Originally established to reduce administrative burdens on low-value imports, the threshold was increased from $200 to $800 in 2015 at the direction of Congress, which had found that “[h]igher thresholds for the value of articles that may be entered informally and free of duty provide significant economic benefits to businesses and consumers in the United States and the economy of the United States.” This change led to a surge in tax-free package shipments, escalating from an estimated 139 million in 2015 to over 1.36 billion in 2024.
Some Quick Stats …
> “The total value of estimated imports of low-value shipments under the de minimis threshold has more than doubled since 2014 to $23.4 billion last year, making it the 12th largest U.S. import category globally,” according to International Trade Centre data.
> In 2023, for the first time, more than 1 billion de minimis packages came through U.S. customs, up from 134 million packages in 2015; a 646% increase over just eight years.
> Shein and Temu, alone, accounted for more than 30% of all packages shipped to the U.S. daily under the de minimis exemption, according to a June 2023 report by the House Select Committee on China’s Communist Party.
Companies like Shein and Temu have built their businesses around the de minimis provision, shipping inexpensive apparel and accessories directly from overseas manufacturers to consumers in the U.S. By avoiding import duties, these retailers have been able to offer products at prices significantly lower than domestic competitors, and thus, the discontinuation of this loophole means that shipments previously exempt from duties will now be subject to tariffs, which could serve to potentially upend the cost structures that have enabled their rapid growth.
While Trump’s February 1 executive order focuses on the “sustained influx of illicit opioids and other drugs” as driving the elimination of the de minimis loophole, the fashion and beauty segments are, nonetheless, bracing for widespread repercussions. Brands that have relied on duty-free imports to maintain competitive pricing may face increased costs, leading to potential price hikes for consumers. “For companies like Temu and Shein this is obviously a very big deal because de minimis was one of the levers they used to be able to offer these low prices as well as ensure speed of products entering the country once they were shipped,” said Juozas Kaziukenas, CEO of e-commerce data firm Marketplace Pulse, told Reuters.
Aaron Rubin, CEO of warehouse management software firm ShipHero, noted that the loophole close is likely to give rise to a margin difference of “about 5 points.” Since e-commerce businesses “usually have a 10% or 15% margin, this is a very significant impact.”
While Shein, Temu, and co. may be among the biggest targets of this trade shift, the impact is likely to be the greatest for small and medium-sized online retailers that source from China, as they will “have fewer resources to absorb the increased costs and adapt their supply chain,” per Reuters. All the while, supply chain complexities are expected to rise, particularly as companies also navigate the new tariff landscape.
In terms of the immediate impact, Shares of Temu parent PDD Holdings were down by almost 6 percent on Monday, after President Trump’s tariffs announcement signaled the end of the loophole. (Note: Shein is not publicly traded, but it looking to list on the London Stock Exchange this year.) As the fashion industry grapples with these changes, companies are exploring strategies to mitigate the impact. Some are considering restructuring their supply chains, exploring alternative sourcing countries, or reevaluating pricing models.