The de minimis provision, which allowed US shoppers to buy low-value goods from China without tariffs, has ended following an executive order by President Trump. CGTN Europe spoke to Hosuk Lee-Makiyama, Director of the European Centre for International Political Economy (ECIPE), about the wider meaning of this step.
00:00A trade loophole allowing U.S. shoppers to buy low-value goods from China without paying tariffs on them has ended.
00:07President Trump signed an executive order cancelling the de minimis provision last month.
00:13Now, previously, packages from China worth less than $800 were not subject to any duties.
00:19But now, they face a 120% tariff or a postal fee of $100 a package.
00:25And in June, that figure goes up to $200.
00:30The implications are massive.
00:33De minimis trade has ballooned to nearly 4 million packages every day, reaching nearly $1.4 billion for the whole of last year.
00:42At least half of those duty-free parcels come from China.
00:46In 2018, Chinese exports of low-value packages totaled $5.3 billion.
00:52By 2023, that figure soared to $66 billion.
00:57It's largely due to the rise in popularity of websites like Shein and Timu.
01:02Both companies have increased their prices for customers based in the U.S. in response to these changes.
01:09Consumers are being warned to brace for increased prices on everyday goods.
01:13As businesses grapple with the added import costs, delivery times could get longer as customs processing becomes more complex.
01:22The cancellation of the de minimis exemption in the U.S. will also significantly impact manufacturers, especially those reliant on low-value imports from China.
01:32Joining me now is Hosok Lee Makayama, director of the European Center for International Political Economy.
01:38Thanks so much for joining us. I mean, the implications are astonishing.
01:43Let's start with the consumer, the U.S. consumer who loves to get those bargains from Shein and Timu.
01:50Does it essentially wipe out any savings they might have gained?
01:53Indeed. And the fact that the United States has actually quite a high threshold for de minimis, as it's called, the threshold before you actually start to begin paying tariff at $800,
02:06which is astonishingly high if you compare it to approximately 100 euros you have in Europe, or zero in the case of China.
02:14So, U.S. customers and consumers have actually been used to order stuff online, aside from the Chinese platforms that we heard about.
02:24We also have Amazon and other intermediaries who are basically agents for, well, retailers from other countries that have been able to actually import duty-free for a very long time.
02:36What does it mean for companies like Shein? I noticed just before we came to air, there are reports coming through that they've got rid of their U.K.-based communications company
02:48that we're going to help them with their London IPO launch. Are they rethinking their business model?
02:53It is very likely. It's not actually just the United States that is shutting down this loophole.
03:03European Union shut the loophole for de minimis on VAT, the sales tax, which has to be paid at the border earlier this year.
03:13And it is planned that it will also shut down its de minimis also on tariffs.
03:18So, the market for small shoppers that are selling directly to the consumers for a small retail value, that loophole always seems to be closing all around the world.
03:31And if we look at the manufacturers in China, a lot of them that supply to the Shein platform, for example, are small businesses.
03:39Are they having to reinvent themselves? What does this mean for them?
03:42They will probably redirect their businesses elsewhere.
03:47And we have the Southeast Asian market that is blooming, the e-commerce markets in, well, emerging markets like Indonesia, Thailand, Malaysia.
03:57It's now starting to boom. And we have seen Chinese online platforms making heavy investments in these markets.
04:04We have also Middle East, where there is very little manufacturing, especially in consumer goods to begin with.
04:10And we will also see, I mean, to a certain degree, consumers in Europe and the United States have gotten used to being able to buy these small accessories to their electronics or clothing items or household items.
04:25Relatively pain-free, immediate delivery at a very low cost, cutting away all the middlemen.
04:32So it might also be that they are willing to pay at least a certain premium.
04:37But we are looking at a hefty tariff here.
04:40And we also, in the case of Europe, talking about VAT that has to be paid at least 25%.
04:46And in addition, we have to bear in mind that until now, 90% of all the shipment has been going under this de minimis threshold,
04:56which basically means that the customer has to actually check at least eight, nine times more items before they are cleared.
05:03We are looking at a heavy backlog of items coming into the United States in the future.
05:09Do you think that any potential trade talks between China and the U.S., will it include discussion around de minimis?
05:17Because it was actually signed as an executive order separate to the tariffs.
05:22I mean, is this going to stick, do you think?
05:25It is likely that it could be another leverage.
05:32It's not unheard of in trade talks that you actually impose a stick in order to remove that as a concession in the trade talks.
05:43And if you look at the whole process, you haven't actually given away anything because you didn't actually have those sticks at the beginning of the talks.
05:51So this is a very well-known trick.
05:53So if you don't want to concede, you basically impose duties or remove de minimis and other liberties that you have to the counterparts before you start to talk.
06:04So that's not unlikely.
06:06We should also bear in mind that China begins their, well, they start taxing at the first yuan.
06:12In other words, they don't actually have a de minimis.
06:15So it's a kind of a leveling playing field between the United States and China in order to make sure that they're actually negotiating from the same baseline.
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