Tariffs Shake Global E Commerce

E-Commerce Under Siege: How Tariff Turmoil and "De Minimis" Demise Are Reshaping Global Trade

The landscape of international e-commerce faces a seismic shift. Dramatic changes to US trade policy, spearheaded by the Trump administration, and similar reviews underway in Europe, are forcing a reckoning for online retail giants and consumers alike. The primary catalyst is the termination of the specific "de minimis" provision, a long-standing rule that allowed low-value goods to enter countries like the US duty-free. This, coupled with hefty new tariffs on merchandise from China, has created a perfect storm, compelling platforms such as Temu and Shein to radically overhaul their business models. Consumers, long accustomed to ultra-low prices, now face the prospect of significant cost increases and potential disruptions to the flow of goods. This new era of protectionism signals a complex recalibration of global trade dynamics, with far-reaching consequences for businesses, shoppers, and international relations.

Temu's US Overhaul: A Shift to Localisation

In a direct response to the altered trade environment, Temu has announced a significant pivot in its US operations. The company, owned by Chinese e-commerce behemoth PDD Holdings, will cease transporting items straight from Chinese locations to purchasers in America. Instead, Temu now states that all sales within the United States are managed by vendors situated domestically, and product dispatches originate from American facilities.

This strategic move aims to circumvent the newly imposed tariffs and the termination of the de minimis provision for Chinese merchandise, which became effective on May 2, 2025. Temu was energetically enlisting United States enterprises to join its platform, framing this as an opportunity for regional merchants to expand their reach. While the company assures US customers that product prices will remain unchanged for now, it had previously added "import charges" to items shipped from China, signalling the pressure of rising costs. Some users have reported stock shortages and additional fees, indicating a period of transition.

The "De Minimis" Rule: A Trade War Casualty

The "de minimis" rule, a term derived from Latin signifying "concerning minor matters," was a cornerstone of the previous e-commerce model. Enacted by the United States legislative body during 1938, it initially aimed to streamline customs by waiving duties on low-value imports to avoid excessive collection costs. Over decades, and following increases in the monetary limit, it permitted merchants to send consignments with a valuation below $800 to purchasers in America free from import levies or taxation.

This particular allowance became vital for companies like Temu and Shein, enabling their ultra-low pricing strategies. In fiscal year 2023, over one billion de minimis shipments entered the US, a dramatic increase from approximately 140 million a decade prior, with China being a primary country of origin. However, both the Trump and preceding Biden administrations raised concerns that this loophole harmed enterprises in America and assisted in the illicit transport of prohibited items, including fentanyl. This led to President Trump signing an executive order in April 2025 removing the duty-free "de minimis" status for merchandise originating in China or Hong Kong, effective May 2, 2025.

Trump Administration Intensifies China Trade Pressure

The decision to terminate the "de minimis" benefit for China is part of a broader, aggressive trade policy pursued by the Trump administration. Since returning to office, President Trump has enacted steep protective tariffs on a vast array of imported goods. Baseline tariffs on merchandise from China have been significantly increased, with the White House indicating that the cumulative tariff rate for particular Chinese merchandise might attain as high as 145 percent when various measures are combined.

This escalation followed a 20 percent tariff on Chinese goods implemented earlier in 2025. The administration frames these actions as necessary to address unfair trade practices, protect US industries, and combat national emergencies like the opioid crisis. The executive order ending "de minimis" for China specifically targets what it calls "deceptive shipping practices by Chinese-based shippers" used to mask forbidden materials. These sweeping tariffs and the focus on China signal a significant departure from previous trade norms, creating substantial uncertainty in global markets.

New Duties and Fees for Low-Value Imports from China

Following the executive order, merchandise originating in China or Hong Kong with a declared worth not exceeding $800, previously exempt, now face new import costs. For items sent through the international postal network, a duty rate of either 120 percent of their value (an increase from an initial 30 percent, then 90 percent) or a fixed charge for each item is applicable. This fixed charge commenced at $25 for each item on May 2, 2025, rose to $50 after June 1, 2025, and subsequent executive orders have further increased this to $100, with a planned rise to $200.

Merchandise brought in via alternative channels to mail services will incur all relevant levies. Carriers transporting these items must now report shipment details to US Customs and Border Protection (CBP) and remit duties on a set schedule. CBP also retains the authority to require formal entry for any package, bypassing these set duties. These new financial burdens fundamentally alter the cost structure for importing low-value goods from China.

Image Credit - BBC

Shein Adapts: Supply Chain Diversification and IPO Delays

Shein, another fast-fashion giant heavily reliant on the "de minimis" system, is also navigating these turbulent trade waters. The company, known for its direct sourcing from Chinese factories and rapid turnaround times, faces significant pressure from the new US tariffs and the end of the duty-free allowance. In response, Shein is reportedly accelerating efforts to diversify its production outside China, with Vietnam emerging as a key alternative manufacturing hub.

This move aims to mitigate rising costs by leveraging Vietnam's lower labour expenses, established garment sector, and potentially more favourable trade agreements. The company is also said to be investing in faster global shipping processes. These strategic shifts come as Shein’s plans for an initial public offering (IPO), possibly in London, have reportedly been delayed due to the regulatory uncertainty, particularly concerning US trade policies. Analysts suggest these adjustments are crucial for Shein to maintain its competitive pricing and safeguard profit margins.

Echoes in Europe: UK and EU Review Import Rules

The shift in US trade policy is mirrored by similar considerations across the Atlantic. The United Kingdom has announced a reassessment concerning inexpensive imported items. Currently, international retailers can dispatch consignments to addresses in Britain appraised below £135 exempt from import duties. Chancellor Rachel Reeves has expressed concerns that these cheap goods undercut British retailers. The review has been met with mixed reactions; while some larger retailers support changes, small businesses and logistics firms worry about possible escalations in cost for consumers and increased bureaucracy.

Meanwhile, the EU bloc has likewise put forward initiatives to eliminate the customs waiver applicable to consignments appraised below €150. This reform, part of a broader EU customs overhaul, is driven by concerns about non-compliant and unsafe products, unfair competition for EU businesses, and the environmental impact of billions of parcels. While the full implementation of the EU changes may not occur before 2028, France is pushing for earlier action, possibly through a flat handling fee.

The Rationale: Combating Illicit Trade and Fentanyl

A significant justification cited by the Trump administration for closing the "de minimis" loophole for China is the fight against the unlawful entry of man-made opiates, particularly fentanyl. The executive order stated that numerous dispatchers in China employ misleading methods to mask forbidden materials within cheaply declared consignments, intending to misuse the special customs allowance. Officials have highlighted the devastating impact of fentanyl, attributing a death toll in America reaching many thousands annually to the drug.

US Customs and Border Protection (CBP) has also noted that criminal groups exploit e-commerce to sell illicit products and drugs online. While CBP has seized significant amounts of fentanyl, particularly at the southern border, there is an ongoing debate about the extent to which low-value consignments contribute to the problem compared to other smuggling routes. The Biden administration had also previously called for measures to strengthen enforcement against drug trafficking via small-dollar shipments and proposed new user fees for "de minimis" entries to fund enhanced systems.

Biden Administration's Preceding Concerns and Actions

Prior to the recent executive orders by President Trump, the Biden administration had already taken steps and expressed significant concerns regarding the "de minimis" provision. In September 2024, the Biden administration announced its intention to restrict the use of the "de minimis" allowance for consignments with items under Section 301 tariffs (mainly impacting Chinese merchandise), Section 201 (global safeguards), and Section 232 (national security tariffs on steel and aluminum). This was framed as part of an effort to reinforce American manufacturing and supply chains. Furthermore, in January 2025, CBP under the Biden administration unveiled notices of proposed rulemaking (NPRMs) for significant reforms to "de minimis" rules. These proposals included expanding import declaration requirements, strengthening enforcement, and excluding goods subject to certain tariff actions from using "de minimis". The administration cited the overwhelming volume of low-value shipments and the lack of actionable data as inhibiting CBP's ability to interdict high-risk items.

The Consumer Impact: Anticipated Price Hikes

Termination of the "de minimis" provision and new tariffs being introduced will foreseeably cause price escalations for shoppers in America and perhaps within Britain and the EU bloc if comparable actions are taken. Even before the latest US changes took full effect, online retailers like Shein and Temu had signalled price adjustments due to rising operating expenses. Economists and policy groups have warned that removing the "de minimis" provision might lead to billions in extra yearly expenditures, probably transferred to shoppers. Projections indicate this might mean $8bn to $30bn in annual expenses. Some reports suggest that US prices could rise by over 2 percent, costing the average household thousands of dollars annually. While some argue that domestic retailers might benefit from reduced low-cost competition, consumers reliant on budget-friendly imports will likely feel the pinch.

Strain on Border Authorities: A Ballooning Burden

The surge in "de minimis" packages in recent years has already placed a considerable strain on US border authorities. US Customs and Border Protection (CBP) processes millions of such shipments daily. The sheer volume makes it challenging to effectively intercept unlawful or hazardous merchandise. The Biden administration's earlier proposed rules aimed to address this by requiring more data for low-value shipments. Critics of ending the allowance, however, express concern that it will generate additional tasks for hard-pressed personnel at the frontiers. Arguments have been made that removing "de minimis" would divert the attention of CBP from critical border areas where most illegal substances enter and necessitate hiring and training new personnel, potentially costing millions. The initial, brief pause in the allowance during February 2025 evidently created turmoil while systems found it hard to adjust.

Debate Over Efficacy: Will Changes Stop Drug Smuggling?

While combating fentanyl trafficking is a key stated aim of the alterations to the "de minimis" system, some experts doubt the measure's effectiveness in curbing illegal drug flows. It is important to note that packages arriving in America with the special allowance previously received scrutiny similar to other merchandise, which involved checks for unlawful materials. Experts point out that a majority of man-made opiates reportedly come into America chiefly via the Mexican frontier, not predominantly via small international parcels.

Drug trafficking networks are also known for their adaptability, capable of shifting production and shipping routes in response to enforcement efforts. Therefore, while enhanced scrutiny of small packages might intercept some illicit goods, critics argue it may not significantly impact the overall drug supply or address the root causes of the opioid crisis. Apprehensions also exist that concentrating significantly on low-value consignments might redirect funds from more effective anti-smuggling operations at other entry points.

Challenges for Domestic Manufacturers: An Uneven Playing Field?

One of the long-standing arguments against the "de minimis" system was that it created an unfair competitive advantage for foreign companies, particularly those in China, allowing them to undercut US businesses. Domestic manufacturers and retailers have often claimed that the ability of overseas sellers to ship goods directly to US consumers without paying duties or taxes made it difficult for them to compete on price.

Groups like the AFL-CIO have called for the removal of the provision, citing "damages and threats" to American companies. Even some major retailers, like Forever 21, have reportedly blamed the "de minimis" loophole for contributing to financial difficulties by enabling fast-fashion competitors to offer significantly lower prices. While the recent changes aim to level this playing field, the broader difficulties encountered by American producers, such as global wage differentials and other operational costs, are likely to persist. It remains to be seen how substantially these tariff changes will rebalance competitive dynamics.

Arguments for Retaining Trade Flexibilities

A historical perspective supporting trade flexibilities like the "de minimis" provision underscores advantages like lessened inflationary effects and the facilitation of quick, affordable goods shipment, aiding American small businesses reliant on it. The contention is that eliminating or severely reducing such allowances could raise taxes and increase administrative burdens for these businesses. Furthermore, suggestions have been made that removing the "de minimis" system could misallocate customs agency efforts. Instead of concentrating on high-risk areas like land borders, customs agencies could become burdened with processing millions of low-value packages. This could necessitate significant investment in new personnel and systems or divert agents from already overstretched areas. Economic analysis has previously suggested that proposals to remove the "de minimis" allowance for particular nations alone could cost customs agencies billions in operational adjustments.

Logistical Hurdles and System Adaptations

The rapid implementation of changes to the "de minimis" system and new tariffs presents significant logistical challenges. The brief pause in the allowance during February 2025 highlighted the difficulties officials at customs, parcel services, and internet sellers experienced adjusting with little warning. Reports from that time indicated that the US Postal Service briefly halted receipt of packages originating in the Chinese mainland or Hong Kong. The new requirements for duty collection, enhanced reporting, and potentially more rigorous inspections for previously exempt packages necessitate substantial adjustments to existing systems and processes for both government agencies and private companies. Shippers like FedEx and UPS, along with CBP, have been preparing to enforce the new rules, and automated systems at CBP have reportedly been updated. However, processing fees on top of tariffs for these small packages could significantly increase overall costs for importers and, ultimately, consumers.

Future of Fast Fashion and Cross-Border E-Commerce

The end of the "de minimis" advantage and the imposition of steep tariffs, particularly on Chinese goods, mark a turning point for the fast-fashion industry and broader cross-border e-commerce. The business models of companies like Shein and Temu, built on sourcing ultra-low-cost goods and shipping them directly to consumers duty-free, face fundamental disruption. While these companies are attempting to adapt by diversifying supply chains, exploring local fulfilment, and potentially absorbing some costs, their ability to maintain the same rock-bottom prices and rapid growth is now under serious question. Consumers may see not only higher prices but also potentially slower delivery times as packages undergo more scrutiny. This could lead to shifts in consumer behaviour, possibly favouring domestic retailers or leading to more mindful purchasing. The era of unchecked, low-cost global e-commerce is likely evolving into a more regulated and potentially more expensive proposition for shoppers worldwide.

Navigating a Transformed Global Retail Landscape

The confluence of rising protectionism, new tariff regimes, and the dismantling of established trade loopholes like the "de minimis" rule is forging a new, more complex global retail landscape. Businesses across sectors, not just fast fashion, must now navigate increased costs, greater regulatory scrutiny, and heightened geopolitical uncertainty. Supply chain resilience and diversification are becoming paramount as companies seek to mitigate risks associated with over-reliance on single sourcing locations or trade routes.

For consumers, the direct impact will likely be felt in their wallets, as the cost of many imported goods rises. Beyond the immediate economic consequences, these policy shifts reflect deeper geopolitical currents and a re-evaluation of the benefits and drawbacks of unfettered globalization. The long-term effects on international trade relations, innovation in e-commerce, and the balance between domestic industry protection and consumer access to global markets will unfold in the coming years, shaping the future of how the world shops and trades.