Trump Ends Tariff Loophole That Enabled Flood of Cheap Chinese Goods

One second past midnight on May 2, the United States ended a trading policy it says has been exploited by China to flood the U.S. market with cheap goods and smuggle illicit drugs into the country.

President Donald Trump signed an executive order in April to end the de minimis exemption for goods imported from China and Hong Kong as of May 2. The White House called it “a critical step in countering the ongoing health emergency posed by the illicit flow of synthetic opioids into the U.S.”

The de minimis exemption allows goods valued at $800 or less to enter the United States without being subject to duties and taxes.

Since 2016, shippers from China and elsewhere have imported billions of small packages to the United States under the exemption.

Starting on May 2, the United States will begin collecting a duty of either 30 percent of the value of packages at $800 or less shipped through the international postal network or $25 per item. On June 1, that rate will increase to $50 per package.

Packages valued at $800 or less shipped through means other than the international postal network will be subject to “all applicable duties,” a White House fact sheet states.

Macau, which, like Hong Kong, is considered by China to be a special administrative region, may be added to the list by the end of the summer over concerns that goods could be routed through Macau to circumvent duties.

Trade analysts who spoke with The Epoch Times said the closure of the de minimis exemption to China and Hong Kong will deal a significant blow to online retailers who sell goods through websites such as Amazon but will be especially detrimental to made-in-China retail and fast-fashion giants Shein and Temu.

De Minimis Imports

Since 1938, under Section 321 of the Tariff Act of 1930, the United States has allowed small packages of trivial financial value to be imported into the country duty-free. The original intent of this legislation, Christopher Casey wrote in a January article for the Congressional Research Service, was to avoid wasting government resources to collect an insignificant amount of revenue.

De minimis is a Latin phrase loosely translated as “pertaining to trifles.”

Congress has moved to increase the value of what the law considers trifles several times in the past 80 years, Casey said in his report. Most recently, in 2015, Congress moved to raise the dollar value from $200 to $800.

The number of de minimis imports rose by 470 percent between fiscal year 2013 and fiscal year 2022, he said, citing Customs and Border Protection (CBP) data.

CBP processes about 4 million de minimis shipments per day, up from 2.8 million last year, according to an October 2024 report from the agency.

The de minimis exemption has largely benefitted merchants shipping goods from China.

Between fiscal year 2018 and fiscal year 2021, about 67 percent of all de minimis imports came from either China or Hong Kong, according to U.S. customs agency data reported in a separate Congressional Research Service article published in February. During that period, those shipments were worth a collective $228 billion.

In 2023, according to the report, Chinese shipments under the de minimis threshold were worth $66 billion. That was a significant increase from $5.3 billion in 2018.

The Congressional Research Service report states that both the Trump and Biden administrations acknowledged that the de minimis exemption is allowing foreign manufacturers reliant on cheap labor to avoid U.S. trade laws. In September 2024, President Joe Biden’s White House pledged to take action on the matter.

Both administrations raised concerns that minimally screened de minimis packages constitute a pipeline for fentanyl and other illicit substances to flow into the United States.

A White House fact sheet on the recent executive order states that China has “subsidized and otherwise incentivized [Chinese] chemical companies to export fentanyl and related precursor chemicals that are used to produce synthetic opioids sold illicitly in the United States.”

Specific to China, Sutherland and Sutter said, legislators including Rep. Mike Gallagher (R-Wis.) have warned that the de minimis exemption allows counterfeit goods and possibly even goods made with forced labor to be imported into the country with minimal scrutiny.

Shein and Temu

The flood of goods imported into the United States under the de minimis exemption is a nail in the coffin for traditional brick-and-mortar retailers, according to Z. John Zhang, Tsai Wan-Tsai professor at the University of Pennsylvania’s Wharton School, and Christopher S. Tang, a distinguished professor at the University of California–Los Angeles’s Anderson School of Management.

Along with the rise of internet shopping over the past 30 years, Zhang and Tang told The Epoch Times, packages shipped directly from manufacturers in China to consumers in the United States have devastated American retailers.

Traditional retailers, Zhang said, need to make decisions far in advance regarding the ordering, stocking, and sale of apparel, in particular. They must maintain an inventory, a supply chain, and physical storefronts—all with corresponding employees—in order to move their goods. If products don’t sell, they are forced to sell to liquidators to try to recover some of their investment.

Direct-to-consumer companies cut out the middleman entirely by creating designs themselves and encouraging competition between manufacturers in China, according to Zhang.

Rather than providing a product immediately, these retailers ask consumers to wait a few weeks in exchange for extraordinarily low prices. Once an order is received, the winning bidder makes the order and ships it directly to the consumer in a postal service package that allows the goods to get the de minimis bypass.

A laundry list of American retailers selling clothing, accessories, toys, gadgets, and household goods have shuttered stores or gone out of business in the past decade.

In March, retailer Forever 21 complained in its most recent bankruptcy filings that online retailers Shein and Temu undercut its prices because they were able to dodge duties on imports by way of the de minimis exemption. The retail giants were also able to circumvent U.S. labor and environmental laws by using factories in China.

Shein and Temu have emerged as giants on the world stage of e-commerce by selling cheap goods made in China directly to consumers.

Shein, a retailer founded in 2012, focuses on selling clothing and accessories to a target audience primarily of young women. The company is officially based in Singapore. On its website, it states that it is the most-searched fashion brand in the world, with customers located in more than 150 countries.

Shein is unique in that it can introduce new designs and products as quickly as trends change, while traditional retailers must plan new looks months in advance, according to Zhang.

Temu, an online marketplace founded in 2022, is owned and operated by PDD Holdings and its subsidiary Whaleco. PDD Holdings, which is registered in Dublin, also runs Chinese online retailer Pinduoduo. Shares of the company are publicly traded on the Nasdaq exchange.

In 2023, according to financial statements filed with the U.S. Securities and Exchange Commission, PDD Holdings reported about $60 million in net income on about $247.6 million in revenue.

Since the termination of the exemption was announced, both Temu and Shein issued statements on their websites saying they would make price adjustments on April 25.

On April 25, it was not immediately clear if the sites had substantially hiked their prices.

Temu continued to significantly undercut competing products. For instance, a two-pack of lithium-ion batteries designed to look like DeWalt brand batteries and work in DeWalt brand power tools sold for $37.31 on Temu.

A two-battery set with the same technical specifications made and sold by DeWalt costs $349 on Home Depot’s website.

Nevertheless, Temu’s reputation has apparently already taken a hit in the United States. As of April 11, according to an analysis of Apple’s App Store data published by Smarter Ecommerce GmbH, Temu’s mobile app dropped from the top 10 most downloaded free apps to 60th. As of April 25, Temu and Shein’s apps had fallen to 71st and 72nd place among the Apple App Store’s top applications.

Zhang and Tang said retail giant Amazon also utilizes third-party sellers who ship goods made in China directly to U.S. consumers.

In November 2024, Amazon launched a new service, Amazon Haul, which offers similar pricing to Temu. In an undated release, Amazon said that the “crazy low prices” are made possible by its “selling partners around the world.”

So far, Amazon has said little about the pricing impacts of tariffs on products sold on its platform. However, on April 10, Amazon CEO Andy Jassy said in an interview with CNBC that he’s “guessing that sellers will pass that cost on.”

As for Temu and Shein, both Zhang and Tang said that in order to avoid the tariffs, Shein and Temu would need to behave more like traditional retailers and adjust their supply chains by either relocating manufacturing to the United States or bulk-shipping products into the United States.

Both of those options fly in the face of the companies’ competitively advantageous on-demand business models, however.

Additional tariffs are being assessed against Chinese goods in what is being called a trade war between the U.S. government and the Chinese regime. Tang said the Trump administration’s 145 percent import duty is unworkable for Chinese imports and is likely designed to force Beijing to the negotiating table.

Another option for Shein and Temu, Tang said, is what he called “illicit transshipment” or moving goods out of Chinese ports to a third country—such as Mexico or Vietnam—before they hit mailboxes in the United States.

Initially, he said, Trump tried to “close the backdoor” with high tariffs on Vietnam and other Southeast Asian countries that have played a role in these tariff avoidance schemes in the past.

“Countries will always take advantage of that,” Tang told The Epoch Times. “There’s always a loophole.”