Trump officially closes de minimis loophole for Chinese goods: What you need to know

The de minimis tax exemption has officially closed for Chinese imports to the US. The loophole has caused much debate in recent years, particularly as experts weigh the possible impact and implications on both companies and consumers if a full halt was enforced. Here is what you need to know…

What is the de minimis exemption?

De minimis – a Latin term translating to “of the smallest” – refers to a tax or duties exemption on small scale imports worth less than 800 dollars for US customers. The policy dates back to the 1930s, with around 100 countries currently benefiting from the exemption. The bottom line had increased from 200 dollars to its current stance in 2016 under former president Barack Obama.

Why is it being closed?

The de minimis policy had already come under scrutiny from the predecessor to current US president Donald Trump, Joe Biden, whose own administration had thrown doubt over the future of the exemption. Trump then briefly paused the loophole for Chinese goods back in February as part of increased efforts to curb the flow of cheap products from the region into the US.

The White House has accused Chinese sellers of taking advantage of the loophole, while the free flow of unchecked small packages entering the country is also deemed to have allowed illicit goods, such as fentanyl, into the country. Local companies have further issued complaints that the exemption has created an unfair competition.

How will it impact brands?

Chinese imports worth less than 800 dollars will now be subject to 120 percent levy. In the way of fashion, this will particularly impact the operations of Chinese fast fashion giants like Shein, which has already enacted plans to increase prices for US customers. The company is said to have increased the average prices of around 100 of its products by 51 percent in the past week.

Its competitor, Temu, meanwhile, has told various media outlets that it has shifted to a local fulfilment model, meaning US sales are handled by sellers in the company and thus prices remain unchanged. Both firms are reported to have accounted for about 17 percent of the US discount market in 2023, according to a report by the Congressional Research Service (CRS).

How is the local industry responding?

The general consensus is proving to be fairly positive from US organisations, so far. The National Council of Textile Organisations (NCTO) has hailed the decision to close the “largely exploited” and “destructive” loophole as a “significant step” for the Trump Administration. In a statement, president and CEO of the NCTO, Kim Glas, said the firm was “grateful” to Trump for halting an exemption “that has allowed unsafe and illegal Chinese goods … to flood the US market duty-free and largely unchecked for years”.

Glas, who is now calling on congress to end de minimis for commercial shipments from all countries, added: “Today’s action by the administration is an important step forward to help rebalance the playing field for American manufacturers, preserve good-paying American manufacturing jobs, spur more investment and innovation in manufacturing facilities here at home, and close the backdoor to China once and for all.”

Similar sentiments were shared in a statement to the NCTO by Amy Bircher Bruyn, CEO and founder of MMI Textiles, an Ohio-based manufacturer that employs around 60 people. Bruyn said the loophole had “wreaked havoc on the US textile industry” and thus she was “encouraged by president Trump’s commitment to ending de minimis eligibility for Chinese imports”.

What happens now?

As stated by NCTO, many US firms are calling for a full halt on the de minimis rule for other countries, too, in order to avoid an influx of cheap Chinese goods to enter from third countries.

Meanwhile, other regions are also bracing for the potential impact of cheap goods entering their respective markets as an alternative to the US. In the UK, government officials have begun weighing their own adjustments to the de minimis policy, which currently allows goods valued at 135 pounds or less to be imported without consumers paying duties. It comes as part of wider plans to mitigate the impact of “practices that undercut fair trade” and “cheap imports [flooding the] markets”.