Tariff Loophole Closes on Friday: How It Will Impact Shoppers

Cheaper goods from China are set to become a lot more expensive for U.S. consumers with the May 2 expiration of a loophole that formerly allowed lower cost packages to enter the country duty-free.

Ultra-low cost retailers like Shein and Temu are among the major players that until Friday relied on the loophole that allowed them to ship low-value parcels to the U.S. tax-free, allowing them to undercut U.S.-based sellers. American shoppers relied on the de minimis loophole, too, for bargain-basement prices that couldn't be matched for goods made in the U.S.

With the end of the loophole, which exempted packages worth $800 from import levies, many goods from China and other countries will no longer be as low-priced as they once were. Trade experts also note that to comply with the law, importers and U.S. Customs and Border Protection (CBP) now face a new administrative challenge: the burden of inspecting millions of additional packages daily. That could mean substantial delays in shipments, experts note.

What does the de minimis exemption entail?

The provision was introduced in 1938 as Section 321 of the Tariff Act of 1930. It was designed to facilitate trade by eliminating the administrative burden of collecting negligible duties on low-value goods at a high cost to the government.

From 2018 to 2023, the value of low-value e-commerce exports from China ballooned from $5.3 billion to $66 billion, according to a February report from the Congressional Research Service.

The 1938 provision has been the "primary path" for Chinese exports to enter the U.S. market, the report notes.

What was the reason behind Trump removing the de minimis exemption?

President Trump in February said He aimed to close the loophole since he felt China wasn’t doing enough to stop fentanyl from reaching America.

In April, Mr. Trump signed an executive order eliminating the duty-free treatment for low-value packages from China and Hong Kong, effective May 2. As of Friday, packages that would have qualified for exemption under the de minimis provision will "be subject to all applicable duties," the executive order states.

On Wednesday, Mr. Trump called the de minimis exemption "a big scam going on against our country, against really small businesses."

"We put an end to it," he said.

Products coming from China now face new duties as high as 145%, whereas Beijing has responded by imposing levies of 125% on items imported from the US.

How will the conclusion of the exception impact customers?

Retailers are already adding significant surcharges. tariff surcharges to customers' orders, leading to sticker shock for some U.S. shoppers who had long relied on China for cheap imported goods.

"The way we shop online will never be the same," Ram Ben Tzion, CEO of Publican, a company that authenticates shipment documentation, told CBS MoneyWatch.

He stated, "Everything will require more time, incur higher costs, and anything dependent on pricing won’t be accessible."

The increase in trade activities between the U.S. and China facilitated a wider array of products entering American markets. However, according to Mary Lovely, an international trade specialist and senior fellow at the Peterson Institute for International Economics, closing this gap will result in a significantly reduced marketplace.

Should the cost of Chinese products increase, this would lead to decreased demand, causing sellers to potentially reduce their imports.

"As the market shrinks significantly, at times it may not be profitable to ship goods to smaller markets," thus leading to a disappearance of certain products, according to Lovely.

Could the new rule cause delays?

Requiring millions more packages to be inspected daily will create a challenge for CBP, experts noted.

"It will be an administrative nightmare, so you will see a lot of delays," Ryan Young, a trade policy expert at the Competitive Enterprise Institute told CBS MoneyWatch.

It's unclear if the government has enough CBP agents to efficiently inspect packages and enforce policies, experts told CBS MoneyWatch.

"As these adjustments are made, a key question remains, which is the ability of CBP to effectively regulate and enforce these measures," Ben Tzion said. "As of today. CBP does not have that ability."

"You won’t have enough staff, leading to delays and accumulations, and U.S. Customs may need additional storage space,” Young noted.

Who might benefit?

Firms selling products manufactured in the U.S. might encounter reduced competition since formerly inexpensive items from China are now reaching higher cost levels.

"Consumers might grow cautious about foreign brands to avoid high costs," said Ines Durand, a retail strategist at Similarweb, a web analytics firm.

Larger companies with higher profit margins or those operating across multiple business sectors may perform more favorably compared to smaller entities. smaller retailers that operate on thin profit margins, making it difficult to re-jigger supply chains.

The consumer will not come out unharmed.

"PwC consumer markets industry leader Ali Furman told CBS MoneyWatch that eliminating the de minimis threshold for tariffs is likely to impact shoppers’ finances," she explained.

She anticipates observing customers beginning to "trade down" by opting for private label products instead of well-known brands, or perhaps resorting to second-hand marketplaces to extend their budget.