Following a breakthrough in trade negotiations between the United States and China, the Trump administration has agreed to slash the de minimis tariff for low-cost items imported from China. The move is part of Trump’s executive order signed Monday, May 12, intended to ease trade tensions between the worldโs two most powerful economies.
The duty reduction is expected to significantly impact Chinese companies like Shein and Temu, and comes after Beijing and Washington reached an agreement to decrease most tariffs against each otherโs products.ย
What tariffs will remain in place?
A joint statement from China and the U.S. did not specifically mention de minimis duty reduction, but an executive order later did say the duties on parcels worth up to $800 will be reduced from 120% to 54%, with a flat fee of $100 still intact, beginning Wednesday, May 14.ย
Shippers can either pay the 54% tariff or the $100 package fee, according to industry analysts. Reuters reports that โthe logistics companies or freight forwardersโ will then โcollect those tariff fees from sellers in China in advance.โ
What is the de minimis exemption?
The de minimis exemption previously allowed parcels valued at up to $800 that are largely sent from China to be shipped to the U.S. duty-free, and those items faced fewer inspection requirements. In February, Trump ended the de minimis exemption and implemented a 120% tax on items worth $800 or less, or else an anticipated $200 flat fee, which had been set to take effect next month.
Trump explained he had implemented the tax and fees because the exemption is often used by Chinese companies like Shein and Temu, and he argued that their low prices grant them an unfair advantage over other U.S. vendors and suppliers. The president and other critics also accuse the loophole, first instituted in 1938, of being used by drug traffickers to send fentanyl and other contraband into the United States.
However, the exemption is also used to supply American consumers with low-cost goods and merchandise.
How often is the de minimis exemption used?
Tariffs
Beijing exported $240 billion in “direct consumer goods” in 2024 using the de minimis exemption, accounting for 1.3% of China’s gross domestic product (GDP).
Shipments sent to the United States employing the de minimis loophole have soared recently, with more than 90% of all parcels coming through the loophole in recent years, roughly 60% of which come from China. Much of that 60% comes from discount retailers like Shein And Temu. A U.S. Customs and Border Protection official revealed to Congress last year that the average value of a de minimis parcel during fiscal year 2023 was estimated at $54.
Mondayโs executive order declares the new tariffs will go into effect just after midnight Wednesday. The plan to implement a $200 flat fee has been scrapped, and will instead be set at $100.
Beijing reportedly exported $240 billion in “direct consumer goodsโ as it used the de minimis exemption globally in 2024, which made up 7% of its sales overseas and accounts for 1.3% of China’s gross domestic product.
Why Shein and Temu may still shift their focus
Industry analysts, however, say that a tariff of 54% is still unworkable in many cases.
Jianlong Hu, the CEO of a Chinese e-commerce consulting company, told Reuters, โSellers are probably taking a wait-and-see approach, but in general I think itโs fair to say the boom times of small package delivery from China to the U.S., the Golden Age is already gone.โ
Shein is reportedly more vulnerable to de minimis modifications because of its dependence on the speed at which it can deliver thousands of fashion items each week to customers in the U.S. by air, compared to its rival, Temu. Hu says that Shein may opt for air for some packages from China and pay the 54% tariff instead of sending all items by sea. โIf people are buying clothes on Shein and are told the product will arrive a month later, who will buy that?โ Hu asked.
Temu and Shein have also tried to minimize the impact of tariffs recently as theyโve relied on items within their U.S. warehouses to avoid shipping fees. Itโs unclear if the tariff reduction will impact this decision.
What else did the US and China agree to?
The agreement between Washington and Beijing in Geneva has U.S. tariffs on Chinese products of up to 145% cut down to 30% and duties imposed on U.S. goods by China cut down to 10% for at least 90 days.
The 90-day reduction in tariffs is reportedly giving companies like Shein and Temu time to bring in large shipments and stock up U.S. warehouses as they try to adapt their businesses to changing trade relationships. Some vendors and suppliers, however, are still refraining from importing goods from China, saying that the reduced tariffs remain too high.
Regardless of how further negotiations proceed, industry experts say that Shein and Temu will diversify their customers, as they now deem the U.S. market a โriskyโ investment.
Separately from the Geneva agreement, Beijing has begun informing government agencies and businesses this week that previously halted deliveries of aircraft made in the U.S. can now resume.
