The removal of a long-standing U.S. tariff exemption for small packages originating from China and Hong Kong has sent ripples of disruption through the e-commerce landscape, forcing retailers to adapt, reassess their strategies, and, in some cases, completely halt sales to American consumers. The expiration of the de minimis rule, which previously allowed duty-free entry for e-commerce packages valued at under $800, marks a significant shift in international trade dynamics and is poised to reshape the competitive landscape for both online marketplaces and brick-and-mortar businesses.
The primary driver of this upheaval is the imposition of tariffs as high as 145% on a wide range of Chinese goods, a consequence of trade policies initiated last month. This sudden and substantial increase in costs has left many retailers scrambling to find viable solutions.
British beauty products retailer Space NK has elected to suspend all e-commerce orders and shipments to the United States, citing concerns about potential inaccuracies in duty calculations and the risk of imposing unexpected costs on its customer base. This decision reflects a broader trend among smaller and medium-sized businesses that are finding it exceedingly difficult to absorb the tariff increases.
Understance, a Vancouver-based company specializing in bras and underwear manufactured in China, has similarly ceased shipments to the U.S., informing its customers via social media that it will only resume operations once the situation becomes clearer. Cindy Allen, CEO of global trade consultancy Trade Force Multiplier, succinctly captures the sentiment of many businesses: "We’re going from zero to 145%, which is really untenable for companies and untenable for customers." She further observes that many small to medium-sized businesses are choosing to withdraw from the U.S. market altogether rather than navigate the complexities and increased costs associated with the new tariff regime.
Companies choosing to remain in the U.S. market face the inevitable task of raising prices to offset the increased tariffs. British clothing retailer Oh Polly has already increased its U.S. prices by 20% compared to its other markets and is contemplating further price adjustments as the full impact of the tariffs becomes apparent.
Chinese retailers, who have benefited significantly from the de minimis rule, are particularly vulnerable to the changes. Temu, the international arm of Chinese e-commerce giant PDD Holdings, has responded by highlighting products already located in U.S. warehouses, labeling them "Local" to reassure customers that no import charges will apply. The company emphasizes that all U.S. sales are now handled by locally based sellers, with orders fulfilled from within the country, and that pricing for U.S. customers "remains unchanged." However, this strategy is a temporary fix, as the stock of goods imported before the tariff changes will eventually be depleted. Both Shein and Temu have reportedly reduced their U.S. digital advertising spending in anticipation of a decline in sales due to the higher tariffs.
Shein, the Singapore-based fast-fashion giant, has acknowledged the impact of the tariffs in a post on its U.S. Instagram account, stating that "Some products may be priced differently than before, but the majority of our collections remain as affordable as ever." The company, which relies heavily on Chinese manufacturing and considers the U.S. its largest market, faces a significant challenge in maintaining its competitive pricing while absorbing the increased tariff costs.
Customs expert Hugo Pakula, CEO of trade automation platform Tru Identity, emphasizes the magnitude of the shift, stating that "E-commerce companies have had it really good for a really long time, and this is a seismic shift in how trade works." He warns that "If your inventory is not already in the U.S., selling to the U.S. is going to hurt."
The rationale behind the removal of the de minimis exemption extends beyond purely economic considerations. The rule has faced bipartisan criticism for its potential role in facilitating the smuggling of fentanyl ingredients from China and contributing to a surge in imports of inexpensive goods, including clothing, toys, and furniture, through online platforms like Temu, Shein, and Amazon Haul. Moreover, the de minimis rule has been identified as a conduit for counterfeit goods, with 97% of intellectual property infringement-related cargo seizures made by Customs and Border Protection in 2024 involving de minimis shipments.
The absence of the de minimis exemption necessitates that sellers of goods manufactured in China provide U.S. customs with more detailed information about the origin of each component of their products. This increased administrative burden, coupled with the substantial tariff costs, is deterring many smaller retailers from continuing to sell to U.S. consumers.
UPS CEO Carol Tome noted that many of the delivery firm’s small to medium-sized business customers source 100% of their goods from China, highlighting the widespread impact of the tariff changes on these businesses. U.S. online marketplace Etsy has responded by making it easier for sellers to specify the country of origin of their products, as tariffs are determined based on the place of manufacture rather than the point of dispatch.
While the end of de minimis treatment for Chinese goods is creating significant challenges for e-commerce businesses reliant on Chinese manufacturing, it may also present opportunities for retailers that are less dependent on online sales or Chinese sourcing. British fast-fashion retailer Primark, which sells clothes to U.S. customers exclusively through its physical stores, believes it could benefit from the change. George Weston, CEO of Primark owner Associated British Foods, suggests that "With prices going up from this part of the trade, I wonder if some Americans might start going back to shopping centers to find value there."
The removal of the de minimis exemption is a multifaceted issue with far-reaching implications for international trade, e-commerce, and consumer behavior. While the immediate impact is a wave of disruption and uncertainty, the long-term consequences remain to be seen. Retailers are adapting, consumers may need to adjust their shopping habits, and the broader landscape of global trade is undergoing a significant transformation.
