Those bargain buys you make online and have delivered straight to your doorstep are about to become pricier. This includes a wide range of items like electronics, books, clothing, shoes, home goods, pet supplies, toys, games, health products, and beauty products, among others.
Why is this happening? The rule that previously prevented tariffs from being applied to low-cost, small goods is expiring soon.
Up until now, consumers could enjoy tariff-free purchases of up to $800 per day directly from international companies or manufacturers.
The removal of this exemption will lead to two significant changes: (1) Your small direct purchases will cost more; (2) The shipping process will take longer. Here’s why:
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All direct-to-consumer imported purchases, regardless of size, will now be subject to tariffs, duties, handling fees, or other additional charges. These extra costs will be added on top of the listed price, meaning that a $20 shirt could end up costing more due to tariffs, duties, processing fees, and sales tax.
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The entire process from purchase to delivery will become more complex. All small-item purchases will now go through the full import procedure instead of a quicker shipping process. This involves customs filing, duty assessment, and payment before packages can be shipped out.
The de minimis exemption, which has been in place since 1938, was initially designed to streamline trade processes. It was expanded in the 1990s to benefit businesses and consumers. In 2016, the limit was raised from $200 to $800 by then-President Barack Obama. However, as of August 29, all trade partners will be subject to tariffs on low-value imports.
What’s in store for consumers?
The White House has announced that the specific duty on each package will be determined based on the effective tariff rate of each country:
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Rate below 16%: $80 duty per item.
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Rate between 16% and 20%: $160 per item.
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Rate above 25%: $200 per item.
Baseline tariffs of at least 10% were imposed on most trading partners in April, with some countries facing even higher tariffs this month. For example, China currently has a 30% tariff on its goods.
Expect to see higher prices on imported items sold by U.S. distributors. This means that prices in physical stores may also rise if distributors choose not to absorb the additional duty costs.
Research conducted by the National Bureau of Economic Research, Yale University, and UCLA predicts that eliminating the de minimis rule could cost consumers between $11 billion and $13 billion overall. The study also suggests that lower-income households, which rely heavily on affordable direct imports like household items and clothing, will bear the brunt of these price increases.
Why is this exemption coming to an end?
The White House stated on July 30 that ending the exemption is necessary to prevent illicit drugs like fentanyl from entering the U.S. via border crossings.
The surge in small-dollar imports, from 153 million shipments in 2015 to over 1 billion in 2023, was driven by two main factors: the 2016 increase in the $800 threshold and the boom in e-commerce. Online retailers such as Amazon, Shein, and Temu have made it convenient for consumers to buy inexpensive products directly from international sellers. Sellers have increasingly turned to de minimis shipments, splitting orders into multiple packages to stay below the $800 limit.
A recent rule also prohibits transhipping, which involves rerouting shipments through countries with lower tariffs to avoid higher costs. With retailers likely passing on shipping expenses to consumers, these two rules will make your budget buys more costly.
Leading up to the end of the exemption, several European shipping companies temporarily halted services to adjust their systems. Companies like Royal Mail in the UK, La Poste in France, Deutsche Post and DHL Parcel in Germany, and others made changes. Postal services in Japan, New Zealand, India, and other countries also suspended deliveries.
As a result of the exemption ending, some retailers may limit their product offerings to U.S. customers. Consumers might shift towards U.S. retailers, reduce their online shopping, or simply buy less to avoid price hikes.
(Photo by Miguel J. Rodriguez Carrillo/Getty Images News via Getty Images)