Looming Closure of Duty-Free Exemption Set to Impact US Online Retail Prices

As the United States prepares to eliminate a key duty-free loophole for low-value packages, online retailers such as Shein and Temu anticipate cost increases for American consumers, stirring debate over trade regulation and legality in imports.

With the impending closure of the de minimis duty-free exemption, US consumers are poised to experience price increases on online shopping platforms like Shein and Temu. President Donald Trump's administration has announced measures to eliminate this loophole, which has allowed low-value packages—worth less than $800—to be imported into the US without incurring taxes or duties.

Supporters of the de minimis rule argue it has simplified customs processing and fostered the growth of online retailers. However, both Trump and former President Joe Biden have raised concerns regarding its potential to undermine American businesses and provide a channel for smuggling illegal goods, including opioids like fentanyl.

Tracing its roots to a 1938 trade policy enabling duty-free souvenirs for travelers, the exemption has gained significant traction in the twenty-first century, accounting for more than 90% of all US cargo imports, as reported by Customs and Border Patrol.

As major Chinese retailers, Shein and Temu, leverage this exemption to attract millions of US customers with remarkably low prices, they now face a shift in dynamics as their operating costs are expected to rise. In statements released last month, both companies indicated that changes in global trade regulations would warrant "price adjustments" starting April 25.

Trump previously attempted to suspend the de minimis exemption in February, a move that was retracted due to logistical challenges faced by customs, delivery firms, and retailers. However, concerns regarding the importation of harmful substances have prompted a renewed effort to stop such abuses of the exemption, particularly from mainland China and Hong Kong, which will now be subject to import duties starting May 2.

Both the Biden administration and Trump's current policy initiative are reflective of an ongoing crackdown on Chinese imports, a trend that could drive prices up for American consumers. Estimates suggest that the elimination of the exemption could lead to additional costs of between $8 billion and $30 billion annually for consumers.

The move has drawn parallels with international labor regulations, as the UK reviews low-value imports, and the EU contemplates similar duty exemptions. The potential increase in prices is not limited to US consumers; residents in the UK and Europe may soon find themselves facing similar hikes as authorities reconsider tax exemptions on imported goods.

Experts express skepticism that ending the de minimis exemption will effectively curtail the influx of illegal drugs into the US, as the majority of such substances are trafficked through the border with Mexico. Furthermore, industry advocates argue that this shift could overwhelm US Border Patrol, necessitating additional hires and resources to manage the anticipated complexities in customs processing.