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President Donald Trump’s new trade levies on China, Canada, and Mexico include a significant move to target international e-commerce by eliminating the tariff exemption for packages valued under $800.

Trump’s executive orders impose 25% tariffs on goods from Canada and Mexico, and 10% on goods from China. The decision specifically removes the “de minimis” exemption, which previously allowed products under this value to enter the U.S. without tariffs. This has been beneficial for Chinese e-commerce retailers who often send inexpensive products directly to U.S. consumers.

The move is targeting a loophole that companies like PDD Holdings Inc.’s Temu and fashion retailer Shein have capitalized on to rapidly expand in the U.S. market. These Chinese-linked companies, which relied on shipping smaller, cheaper packages in high volumes, gained significant advantages over established U.S. players such as Amazon. Critics argue that the massive influx of goods from China is difficult to monitor and may even contain illegal or dangerous products. 

Trump’s decision, though expected by companies like Temu and Shein, is set to impact a rapidly growing market. Temu US, for example, contributes a small percentage to PDD’s revenue. With rising pressure from new tariffs, these companies have already been adapting by diversifying their logistics networks and shifting to larger bulk orders.

However, the full impact of these changes is still unclear. Trade lawyers suggest that Trump’s decision could apply broadly, even to existing duties against China, Mexico, and Canada. In the first nine months of last year, U.S. imports through this loophole were valued at around $48 billion.

Temu, in particular, thrived by offering deep discounts and appealing to U.S. shoppers willing to wait longer for their products, sidestepping tariffs through the de minimis exemption. Large U.S. retail chains, on the other hand, pass tariff costs along to customers, giving Temu an edge.

The White House justifies closing the exemption by claiming that the U.S. loses significant tariff revenue and that the loophole hinders efforts to prevent illegal substances, such as fentanyl, from entering the country undetected. 

In 2024, more than a tenth of China’s exports to the U.S. came through smaller-value shipments, with a dramatic increase in de minimis shipments expected this year. While Temu has already started shifting to bulk shipments and paying tariffs on them, the new rules will still affect its business model, especially in the discount sector.

Yale professor Amit Khandelwal highlighted that lower-income consumers, who rely more on lower-value shipments, would be the most impacted by the end of this exemption. Trump’s tariffs, set to take effect at 12:01 am New York time on Tuesday, are also seen as a response to Canada, Mexico, and China not adequately addressing issues such as fentanyl trafficking and illegal immigration across U.S. borders.

Paraphrasing text from "Bloomberg" all rights reserved by the original author