What is the “De Minimis” rule; how ending it will increase the cost for US consumers and China’s role

The US will end a long-standing tariff exemption for low-value international shipments tomorrow, Friday, August 29, meaning imports worth $800 or less will no longer enter duty-free. The change, part of an executive order signed last month, affects millions of daily shipments and comes nearly two years ahead of the original deadline set by Congress.

Under the previous “de minimis” rule, almost 1.4 billion packages valued at over $64 billion entered the US last year without customs duties, according to the US Customs, reported by the BBC. Going forward, purchases that previously entered the US duty-free will now be subject to customs review and the appropriate US tariff rate, which can range from 10 per cent to 50 per cent, depending on the product type, as per AP.

What is de minimis?

In the US, “de minimis” is a Latin term that means something too small or unimportant to worry about. The de minimis exemption was introduced in 1938 to avoid the cost and hassle of collecting import taxes on very low-value goods. At first, it applied to items worth $1 or less, but over time the limit increased: $5 in 1990, $200 in 1993, and $800 in 2015, according to the Congressional Research Service.

This rule has made it easier for e-commerce and global retailers to ship small packages to the US without paying duties. Last year, 1.36 billion packages worth $64 billion used this exemption, compared to just 134 million packages in 2015.

President Trump and his predecessor, Joe Biden, criticized the policy for being detrimental to US businesses and claimed it has been exploited to smuggle illegal goods, including drugs like fentanyl.

China to gain or lose?

According to a report by logistics firm Flexport using US government data, around 60 per cent of shipments to the US in 2024 originated from China and Hong Kong, AP reported. The remaining shipments came from various countries and regions, including Canada, Mexico, the European Union, India, and Vietnam.

China has mastered the art of producing cheap goods, which have flooded most countries in the last couple of decades. Imposing customs duties on goods with less than $800 will drive up the price and force consumers to look for cheaper options, giving Chinese companies like Shein and Temu a massive boost.

According to a BBC report, the two companies have a presence in the US with their distribution centres up and running in many locations.

How the prices will be calculated

With the required paperwork, shippers will pay duties based on the tariff rate of the product’s country of origin. If documentation is incomplete, carriers may instead opt for a flat fee of $80 to $200 per package, a temporary option available for six months to help postal services adjust to the new system, according to the White House executive order issued on July 30.

However, according to the fact sheet released by the White House, personal gifts valued at $100 or less, as well as personal traveler items up to $200, will continue to be duty-free despite the end of the de minimis exemption.

An incoming price rise?

Without the exemption, businesses must also now account for US tariffs on goods based on their country of origin, which took effect for most nations in August.

According to the BBC, rates vary widely from as low as 10 per cent for countries like the UK and Australia, and up to 50 per cent for Brazil and India. Under the new system, shipments will face fixed duties: $80 per item for countries with tariffs of 16 per cent or less, $160 for those between 16 per cent and 25 per cent, and $200 for countries with higher rates.