De Minimis Tariff Exception Eliminated for Small Shipments of Chinese Goods; Companies Adjusting Their Tactics

The so-called “de minimis exception” to the US tariff laws allows otherwise dutiable shipments to enter the country tariff-free if they are valued at less than $800.  Although the headlines are full of news about how ultra-low-cost retailers such as Shein and Temu have benefited from the tariffs, the reality is that de minimis has played a big part in the supply chain strategies of many companies, large and small.  As of early May, the de minimis exception for Chinese goods has been eliminated, which is leading to a scramble.  

As detailed in the attached article, prices on retail goods such as shoes could nearly double if they absorbed the full impact of new Chinese-goods tariffs.  Many retailers have set up their shipping and fulfillment such that shipments from China go to a warehouse in Canada, where they then sit until US customers place an order.  The order, such as for a pair of shoes or a bra costing less than $800, then enters the US under the de minimis exception.  

Now, those companies are looking for alternate ways to store and import their goods.  Some are splitting their warehousing, continuing to use Canadian storage for goods from countries other than China while bringing their Chinese goods directly to the US in bulk (where they can pay tariffs on the lower wholesale value of the shipment than on the retail value of each item).  Retailers are also raising prices to account for the new tariffs on China and other countries.  It remains to be seen how much manufacturing will be shifted to countries other than China; building plants takes longer than changing shipping and storage plans.  

WHY IT MATTERS

Although US warehousing could see an uptick from retailers who choose to export from China directly to the US rather than Canada, the impact on other US entities remains unclear.  FedEx and UPS often ship the consumer packages across the border to their end destinations.  The postal service carries millions of packages that come direct from China (such as from Shein) to US consumers.  Customs and Border Patrol will now have to inspect packages that formerly came in without the need for inspection.  Last year, more than one billion packages entered the US under the de minimis exception, according to the attached WSJ piece.