President Trump's executive order imposing tariffs on goods from China, Canada, and Mexico has sent shockwaves through global markets. But another part of the order has also had e-commerce brands scrambling for solutions. It targets a loophole in US customs law that has been used by e-commerce disruptors like Shein and Temu and many American companies. This loophole, known as de minimis, allows importers to avoid paying duty and tax on shipments valued at less than $800 and going directly to customers. Companies are now adapting their business models to navigate these changes.
President Trump's executive order issued on Saturday, imposing tariffs on goods from China, Canada, and Mexico, sent shockwaves through global markets. However, another aspect of the order has triggered a flurry of activity among e-commerce businesses, as it targets a loophole in US customs law that has been exploited by online retailers like Shein and Temu , along with numerous American companies.
This loophole, known as Section 321 or de minimis, permits importers to sidestep paying duty and taxes on shipments valued at less than $800 that are shipped directly to consumers. Importers utilizing de minimis are not obligated to provide the same level of detail to US Customs and Border Protection as those employing more conventional import methods. Critics of de minimis have argued that its lack of stringent inspection protocols has facilitated the importation of illicit goods, such as fentanyl, into the United States.Trump's executive order aims to partially close this loophole by imposing tariffs on goods originating from China, Mexico, and Canada. The order specifically calls out Canada for its alleged insufficiency in apprehending and intercepting drug traffickers, criminals, and illicit drugs. Notably, the order does not explicitly address de minimis shipments originating from countries beyond the three listed, leaving open the possibility that the loophole could persist for imports from other nations.Companies that have heavily relied on de minimis are now scrambling to adapt their business models. Maggie Barnett, CEO of third-party logistics provider LVK, disclosed that some direct-to-consumer brands she consulted with over the weekend are confronting cash-flow challenges due to their reliance on de minimis to import goods into Mexico or Canada before duty-free delivery to US customers. They may be compelled to increase their prices. Barnett emphasized that her company advises clients to carefully evaluate their options before overhauling their supply chains in response to the executive order, warning against making drastic changes that could be rendered obsolete by future policy announcements. Barnett recommends exploring alternative solutions, such as collaborating with a US-based third-party logistics company or sourcing from suppliers in countries unaffected by the executive order.Portless, a startup that mirrors Shein's model by fulfilling online brands' orders in China and then directly shipping them to customers, informed BI on Monday that it would transition to alternative methods like Entry Type 11. Entry 11, while faster than traditional import types, mandates importers to pay taxes upfront. Portless will now assume the responsibility of paying its customers' import duties in advance and subsequently issue monthly invoices to brands for reimbursement. CEO Izzy Rosenzweig stated that the company has been preparing for this potential shift over the past few months
E-Commerce Tariffs Shein Temu De Minimis Customs Law Supply Chain US Trade Policy
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