The End of Cheap Chinese Goods: How Trump’s Trade Policy Impacts American Consumers and Businesses
American consumers are about to feel a pinch in their wallets as the era of ultra-cheap goods from China, readily available on platforms like Amazon and Temu, comes to an end. A key trade exemption, known as "de minimis," which allowed tariff-free entry for shipments valued under $800, has expired under an order from former President Donald Trump. This policy shift is poised to significantly reshape the landscape of online retail, impacting consumers, small businesses, and major players in the e-commerce world.
The de minimis exemption had been a cornerstone of the modern direct-to-consumer retail model. It allowed individual consumers to purchase low-cost goods directly from overseas suppliers, primarily in China, without incurring additional import duties. This fueled the explosive growth of platforms like Temu and Shein, which built their business models on offering incredibly low prices on a vast range of products.
Prior to the expiration of the exemption, shipments valued under $800 were exempt from tariffs. Now, Chinese imports that previously qualified for the de minimis exemption are subject to a duty rate of either 30% of their value or $25 per item. The latter will rise to $50 per item after June 1, 2025, according to the White House.
The impact on American consumers is straightforward: higher prices. Retailers, facing increased import costs, will inevitably pass those costs on to consumers. The scale of this price increase could be significant, considering the sheer volume of de minimis shipments entering the US daily.
The de minimis exemption had been gaining traction in recent years, with a dramatic surge in the volume of shipments. Between 2015 and 2024, de minimis shipments increased nearly tenfold, from 134 million to almost 1.4 billion. China was by far the largest source of these shipments. In 2023, a staggering 62% of all de minimis shipments, valued at approximately $33.8 billion, originated in China.
Several factors contributed to this explosion in de minimis shipments. The de minimis exemption has existed since 1930, but Congress raised the threshold for qualifying goods in 2016 from $200 to $800, making it more attractive to import relatively low-value items tariff-free.
The shift in American shopping habits played a significant role. The rise of online direct-to-consumer retail and dropshipping, where businesses do not hold inventory but rely on third-party suppliers to fulfill orders, has been a game-changer. Many of these businesses rely on Chinese suppliers who can fulfill orders and ship them directly to US customers cheaply under the de minimis exemption.
In anticipation of the exemption’s expiry, Chinese retailers like Temu and Shein have started to raise prices. While the exact price hikes vary, reports indicate that Shein prices rose by approximately 10% in a two-day period. Temu introduced "import charges" of 145% of an item’s cost and announced plans to stop selling goods imported directly from China to US consumers altogether.
The end of the de minimis exemption is not limited to affecting major retailers; it also has a profound impact on small to medium-sized businesses in the US, such as individual sellers on platforms like Etsy and Shopify. These businesses, which often rely on sourcing affordable materials and components from China, are now facing increased costs. Many have already raised their prices, resulting in a significant drop in US orders. As a result, some are exploring diversifying beyond the American market.
The loss of US customers could ultimately force many small businesses to close entirely. For consumers, this translates to fewer choices and higher prices, contradicting promises of economic revival.
While the stated intention behind ending the de minimis exemption might be to level the playing field for American manufacturers and address concerns about unfair trade practices, the immediate consequences are higher costs for consumers and potential hardship for small businesses. The long-term effects on the economy remain to be seen, but the immediate impact is clear: the era of ultra-cheap Chinese goods has come to an end.
The change might also lead to shifts in supply chains. As Chinese goods become less competitive, businesses may look to other countries for sourcing, potentially diversifying supply chains and reducing reliance on a single nation. This could lead to a more resilient global trading system but also involve initial costs and adjustments.
The future of online retail is uncertain in the absence of the de minimis exemption. Companies that rely heavily on Chinese suppliers and the exemption will have to adapt. This could involve diversifying supply chains, renegotiating contracts, or finding ways to absorb some of the increased costs.
The expiration of the de minimis exemption marks a significant turning point in US-China trade relations. Whether this policy change will ultimately benefit American consumers and businesses remains to be seen. What is certain is that the landscape of online retail is undergoing a major transformation, and consumers will bear some of the consequences.
