The federal de minimis exemption from investment review will expire this Friday. Known as the de minimis rule, this change has permitted international shipments valued at $800 or less to be imported into the United States duty-free. New executive order No. 142 signed last month has ignited a new wave of transformation. Foreign businesses are no longer exempt from customs and duty charges on their packages, a small but meaningful win for consumers and small business owners across the country.
Initially introduced in 1938, the de minimis exemption was designed to save the federal government time and resources in collecting duties on imported goods valued at $1 or less. Lawmakers consistently increased the eligibility cutoff in subsequent years. They originally established it at $5 in 1990, raised it to $200 in 1993, and then finally up to $800 in 2015. In Fiscal Year 2021, a record 134 million packages were shipped using this exemption.
Over the last year, the cumulative number of packages delivered to the U.S. has jumped to 1.36 billion. These combined packages had a really substantial value—$64.6 billion. This rapid growth has turned the eyes of U.S. officials with concern. The exemption is often referred to by the Trump administration as a loophole. They contend that foreign companies abuse it to avoid paying tariffs, and it helps enable the smuggling in of drugs, counterfeit goods, and other contraband into the country.
With the de minimis exemption set to expire soon, small business owners find themselves in a slow-moving crisis. Ancestral Places Kristin Trainor, owner of a boutique— Diesel and Lulu’s—on Commercial Street Kristin is bracing for the worst.
“I have not made any official announcements to my customers just yet, although they have started to ask if I will stay open as they understand the economic impacts that are occurring,” – Kristin Trainor.
Trainor’s boutique, Avery Rose, focuses on casual chic styles at a budget-friendly price point. Yet, she worries that the new customs and duty charges will take that affordability away.
“The added customs and duty charges that will go into effect on Aug. 29 will eliminate that affordability,” – Kristin Trainor.
With the clock ticking towards the deadline, Trainor concedes that she is increasingly headed toward closing her store.
“At this point, I am leaning more and more towards closing the boutique, sadly,” – Kristin Trainor.
She’s not the only small business owner who’s been affected by this sudden policy reversal. Ken Huening, who runs CoverSeal, a protective cover manufacturing business with factories in both Mexico and China. He hears from customers these days is, “Why don’t you have a supply chain in the U.S.?”
“We are often asked why we don’t just establish a U.S. supply chain,” – Ken Huening.
The decision to eliminate the de minimis exemption comes against a long-standing, robust, bipartisan, and popular push to curb bad international trade practices. Meanwhile, the U.K. allows foreign companies to ship items worth less than 135 pounds (about $182) tariff-free. European Union countries that use the euro permit a threshold of 150 euros ($129).
Japan, Switzerland, and half a dozen other countries have suspended the transit of U.S.-bound packages. They reached this decision due to uncertainty about processing and payment obligations. This lack of clarity has resulted in countless non-U.S. merchants still wrestling with how to address the new rules.
The new regulatory landscape would dramatically impact how you and I, consumers, behave. And with new customs and duty costs suddenly introduced, many cheaper products will simply no longer be within reach of typical consumers. This could mean fewer sales for the thriving small businesses that depend on low-cost goods they can import.
