What is the 'de minimis exemption' to tariffs and why its end could have a huge impact on your wallet?
President Donald Trump will close a loophole that allows online retailers to send small packages to the U.S. without paying a tax as part of his trade tariffs clampdown – a move that could have an impact on the wallet of everyday Americans.
Under the “de minimis” exemption, a longstanding rule that applies to packages entering the U.S. worth under $800, retailers overseas are allowed to sell products at lower prices by shipping them straight to consumers, bypassing domestic warehouses.
The loophole is commonly used by online Chinese retail giants such as Shein and Temu. It has allowed the brands to sell goods at extremely cheap prices and seen their popularity grow in recent years.
But Trump is putting an end to the exemption and his order will require Customs officials to slap tariffs on packages that are declared under $800, Bloomberg first reported. Tariff costs are usually passed to the consumer, so an extra cost for manufacturers likely means higher prices for consumers.
Trump has characterized the trade tariffs as a “drug war.”
Senders overseas using the loophole have not had to share as much information about the contents of packages with U.S. Customs and Border Protection, Bloomberg reports.
Critics argue that because of the lack of discolsure, the exemption has in turn fueled a drug crisis in the U.S. as the packages are not typically inspected rigorously.
A drug prevention group wrote to Trump before his inauguration and urged him to end the de minimis exemption in order to “quickly and comprehensively close this outdated and dangerous loophole and the fentanyl crisis it has facilitated.”
A research paper by the National Bureau of Economic Research in 2024, highlighted by the New York Times, found that lower-income zip copes are more likely to import de minimis shipments. “Particularly from China, which suggests that the tariff and administrative fee incidence in direct-to-consumer trade disproportionately benefits the poor,” the authors wrote.
Eliminating the exception, the report said, could see costs of $11 billion to $13 billion for American consumers. “Doing so would disproportionately hurt low-income and minority households,” the report said.
Andrew K. McAllister, a partner at law firm Holland & Knight in Washington, D.C., told the Wall Street Journal that the move was “causing chaos at all levels.”
Lawmakers have been calling for the exemption to be scrapped for years.
The Biden administration had its sights on closing the loophole in September and claimed that the number of shipments taking advantage of the exemption over the last decade had soared from 140 million a year to 1 billion a year.
The new tariffs on China are set to begin at 12:01 a.m. ET on Tuesday.
