Trump closed the ‘de minimis' import loophole ‒ until all hell broke loose

Yahoo

14-02-2025

By Laura Gottesdiener and Stephen Eisenhammer
(Reuters) - Days after U.S. President Donald Trump ended duty-free entry for cheap Chinese goods entering the U.S., his administration put the order on hold after more than a million packages piled up at New York's John F. Kennedy International Airport.
It was the result of a rushed, confusing policy change that proved unworkable on short notice. Government officials are now scrambling to implement the order in a way that won't cripple America's hyper-efficient import system.
Trump's executive order took aim at a little-known trade rule called "de minimis." Merchandise with a value totaling less than $800 is allowed to enter the country duty-free and with minimal inspections. The number of shipments entering the U.S. through this tax-free channel has exploded in recent years, reaching nearly 1.4 billion packages last year, due largely to online shopping. More than 90% of all packages coming into the U.S. now enter via de minimis. Of those, about 60% come from China, led by direct-to-consumer retailers such as Temu and Shein.
Trump campaigned on a promise to punish China for the role it has played in the synthetic opioid crisis that has killed more than 450,000 Americans in the last decade. Chinese chemical makers are the top suppliers of raw materials purchased by Mexico's cartels to produce the deadly drug, U.S. anti-narcotics officials say. A Reuters investigation last year detailed how traffickers often route these chemicals through the United States by exploiting the de minimis rule. China has repeatedly denied culpability.
In a February 1 executive order, Trump announced an additional 10% across-the-board tariff on all Chinese imports and ended the de minimis exemption for Chinese low-value packages that had previously entered duty free. The White House gave just three days for the policy to take effect. On February 7, the portion of Trump's order affecting de minimis parcels was paused because those responsible for carrying out the order had not been given sufficient time to prepare. Packages were stacking up at ports of entry, including at JFK Airport.
Logistics experts say it was impossible for major parcel carriers, e-commerce platforms, the U.S. Postal Service and U.S. Customs and Border Protection (CBP) to overhaul their operations in a matter of days to begin collecting tariffs on previously exempt goods, especially with millions of de minimis packages already en route from China.
"You just can't snap your fingers….it doesn't work that way," said former senior CBP official John Leonard, who retired from the agency in 2024.
Leonard said these types of major changes have traditionally taken months to implement, and they involve close collaboration between CBP and the private sector.
The U.S. de minimis rule, which dates back to 1938, has been the target of growing criticism from both Democratic and Republican lawmakers. Some have derided it as a loophole that allows cheap Chinese products to flood into the U.S. and undercut American industries, while also serving as cover for smuggling contraband such as illegal drugs and their precursor chemicals. A Reuters series last year penetrated the supply chain for fentanyl-making chemicals and showed how traffickers take advantage of the massive volume of de minimis packages in order to sneak precursors into the country.
Despite growing consensus for the need to reduce the number of packages coming in through de minimis, the sheer volume means that any changes to the regulations need to be well considered and implemented on a time frame that gives shippers and CBP time to adjust, a half-dozen private logistics experts, former customs officials and politicians told Reuters.
The need to pay duties on the millions of low-value packages coming from China each day also risks slowing a shipping system built to move parcels quickly and that is ill-equipped to store large quantities of goods for any length of time. American shoppers have become accustomed to nearly seamless delivery of online orders of affordable clothing and gadgets from China.
U.S. Representative Rosa DeLauro, a Connecticut Democrat, supports ending de minimis exemptions entirely for all countries, not just China. But she said Trump's surprise order caught the shipping industry off guard. The federal government traditionally would solicit input from affected parties and give them months to prepare.
"You have to have put in place some sort of an infrastructure," DeLauro said. "You don't start saying, 'I'm going to change the world,' and then don't figure out how the heck you're going to do that."
She also criticized Trump's order as being too geographically limited. She said companies currently manufacturing in China could move operations to places such as Vietnam and Thailand and export it from there in efforts to skirt the de minimis ban on Chinese goods.
Trump has now put the Commerce Department in charge of figuring out how to make his policy work.
A particular challenge is the government-owned United States Postal Service (USPS). Although USPS only accounted for about 5% of last year's total de minimis shipments, some 75 million parcels, experts described it as the Achilles heel of any policy to remove tariff exemptions on low-value shipments. USPS, with a history developed around the receiving and sending of letters, is not set up to assess and process duties on packages of sweaters, shoes and headphones coming from abroad.
Express carriers like FedEx, UPS and DHL have in-house customs brokerage divisions that collect any tariffs owed by package recipients, and these companies often handle every step of a delivery, from drop-off to doorstep. In contrast, USPS receives items from foreign postal services that are flown into a handful of international mail facilities at major U.S. airports. These packages often arrive with limited information about their contents. In addition, USPS is not set up to process tariffs.
"The postal service has absolutely no way, themselves, to collect duty or pay duty to the government," said Cindy Allen, CEO of Trade Force Multiplier, an international trade consultancy service, and a former CBP official.
Following Trump's order, USPS on February 4 temporarily stopped accepting incoming packages from China and Hong Kong as it worked to figure out how the duties might be collected. It reversed course some 12 hours later.
In a public statement, the postal service said it was working with CBP to "implement an efficient collection mechanism for the new China tariffs to ensure the least disruption to package delivery."
To start processing duty on millions of incoming packages, USPS would likely have to partner with customs brokers, experts said. Another option would be to exempt USPS from the new rules. But that could drive a surge of low-value goods into the international mail, where CBP has struggled to effectively screen parcels and comply with legislation aimed at stopping fentanyl trafficking.
USPS did not reply to requests for comment. The U.S. Postal Inspection Service, the law enforcement arm of the agency, told Reuters last year that it works tirelessly with U.S. Customs and other partners "to combat illicit drugs entering the mail."
DHL, UPS and FedEx said they comply with all regulations and have the capacity to adapt to the changes as required. CBP did not respond to a request for comment.
CBP is also going to need more people inspecting incoming packages, experts said. It is unclear where those extra personnel might come from given that the Trump administration is now focused on downsizing the federal workforce.
The Trump administration intends to reinstate the ban on de minimis "in short order," an administration official told Reuters.
Whenever that is, it could be another rocky rollout, said Lars-Erik Hjelm, a lawyer specializing in international trade law who used to work for U.S customs. Global shipping routes can be circuitous, with goods frequently passing through various countries before entering the United States. Hjelm said that presents a challenge because it would be harder to establish the Chinese origin of the merchandise.
"It's going to be chaotic, no matter what," he said.