US small parcels loophole set to close, pushing up prices at Shein and Temu

A duty-free loophole for low-value packages is about to be closed by President Donald Trump, pushing up prices for US customers of firms like Shein and Temu.

The Chinese online retail giants relied on the so-called “de minimis” exemption to sell and ship low-value items directly to the US without having to pay duties or import taxes.

Supporters of the loophole, which applied to parcels worth less than $800 (£600), argue it helped streamline the customs process.

But both Trump and his predecessor, Joe Biden, said it damaged American businesses and was used to smuggle illegal goods, including drugs.

De minimis is a Latin term, which literally translates to “of the smallest”.

In this context it refers to a US trade rule enacted in 1938 to allow tourists returning to the US to bring souvenirs worth up to $5 (about $112 in today’s money) from abroad without declaring them to customs.

In the 21st Century, it allowed retailers to ship packages worth less than $800 to US customers without having to pay duties or taxes.

Shipments under the exemption account for more than 90% of all the cargo entering the US, according to the country’s Customs and Border Patrol (CBP).

Chinese online retailers like Shein and Temu have benefited greatly from the loophole.

Both platforms have attracted millions of US customers with marketing blitzes that showcased their ultra-low prices

And it was the de minimis exemption that helped them offer those deals so cheaply.

Shein and Temu did not immediately respond to BBC requests for comment.

However last month, in almost identical statements, the rival companies said they have seen operating expenses rise “due to recent changes in global trade rules and tariffs”, adding they will make “price adjustments” from 25 April.

In February, Trump briefly closed the loophole.

The suspension was quickly paused as customs inspectors, delivery firms and online retailers struggled to adapt to such a major change at short notice.

During the initial suspension of the exemption the US Postal Service temporarily stopped accepting parcels from mainland China and Hong Kong.

The executive order announcing the latest move said it was aimed at tackling the illegal importation of synthetic opioids like fentanyl.

It said many Chinese shippers use deceptive practices to hide illicit substances in low-value packages “to exploit the de minimis exemption”.

“These drugs kill tens of thousands of Americans each year, including 75,000 deaths per year attributed to fentanyl alone,” it added.

Under the executive order, those packages from mainland China and Hong Kong will become subject to import duties from 2 May and the charge will rise the following month.

The idea is not new. Last year, the Biden administration proposed rules intended to stop “abuse” of the exemption.

“The growing volume of de minimis shipments makes it increasingly difficult to target and block illegal or unsafe shipments,” it said.

The move is in line with Trump’s policies of cracking down on goods from China.

Since returning to the White House in January, Trump has imposed taxes of up to 145% on Chinese imports. His administration said in April that when the new tariffs are added on to existing ones the levies on some Chinese goods could reach 245%.

US authorities have also blamed the success of firms like Temu and Shein for putting strains on border authorities, as the number of packages entering the US under the loophole surged from about 140 million a decade ago to more than one billion last year.

Even before these packages became subject to import taxes, US consumers saw prices rising.

Shein and Temu started putting up prices for their US customers ahead of the 2 May deadline “due to recent changes in global trade rules and tariffs”.

The American Action Forum, a right-leaning policy group, estimated last year that getting rid of the exemption would result in “$8bn to $30bn in additional annual costs that would eventually be passed on to consumers”.

Chinese online retailers have also benefited from similar rules in the UK and the European Union to reach millions of customers.

There are concerns that the US crackdown could lead to cheap goods from China flooding into the UK.

In a move mirroring the US action, the UK has announced a review of low-value imports coming into the country.

In the UK, the current rule allows international retailers to send packages to the UK worth less than £135 without incurring import taxes.

Chancellor Rachel Reeves said the cheap goods are “undercutting the British High Street and British retailers”.

The European Union has also called on member states to scrap duty-free exemptions for parcels worth less than €150 (£127.50; $169.35)

And in February, the EU proposed a new fee for parcels being shipped into the bloc from online retailers.

Which means consumers in the UK and EU could soon also see prices rising.

Packages that arrive in the US under the exemption are inspected in the same way as other goods, including being checked for illegal substances. And most synthetic opioids are brought into the country through the border with Mexico, according to officials.

Some experts think ending the exemption will do little to curb illegal drugs and not address the challenges faced by US manufacturers.

There are also concerns the move will create more work for US border officials, who are already stretched as they try to stop drug smuggling.

According to pro-open trading association the National Foreign Trade Council (NFTC), removing the de minimis exemption would “shift the CBP’s focus away from the border, where a vast majority of illegal substances and products are entering the country.”

“CBP would need to hire and train new personnel, costing the agency millions or causing them to move agents from the already overburdened southern border,” it added.