The End of De Minimis: What It Means for Temu and Beyond
Happy "End of China to U.S. de minimis" Eve!
Today is "End of China to U.S. de minimis" eve, marking the end of a 9-year chapter in e-commerce, when de minimis increased from $200 to $800 in 2016.
The era of shipping Chinese goods to American customers tax-free under the $800 de minimis threshold of Section 321 is over as of 12:01 AM tomorrow (Friday May 2).
After today, any product made in (or courier or mail orders shipped from) China, or Hong Kong, will be treated like any other import – subject to all applicable duties and required to undergo full customs clearance.
Any mail shipments from China, Hong Kong, or Macau will incur a charge of either 120% of the item’s value or a flat $100 per package (rising to $200 on June 1, 2025). [Note: speculation is de minimis will end for other countries in the coming months]
I've been hearing some very "creative" (sic: illegal) schemes to avoid these new rules, such as undervaluing invoices, mislabeling country of origin, route shipments through other countries, etc. The CBP is on high alert for such schemes, and the last thing you want is to trigger a federal False Claims Act ("FCA") case and have initiated bounty hunters on offenders. Penalties can be 3x the unpaid duties. Be careful!
Temu: A Tale of Two Slippers
With “de minimis" ending tomorrow, I was curious to see what today’s cost of a product I purchased on Temu back in January of this year would be. I was shocked - but unsurprised - to see the cost for those beautiful, trendy, plastic smelling made in China slippers I purchased for a total of $13.07 is now $35.14!!!
Actual slipper cost went from $11.96 to $14.39 (an increase of 20%), plus $19.34 in import charges. A total increase of almost 200%!
Temu slippers
Once a way to purchase cheap crap for cheap, it appears their competitive advantage has dwindled and I can't imagine any material volume will sustain until they determine a new loophole...
The U.S. imports $600B worth of goods from China every year, 95% of that via ocean freight. Those goods sell at retail for ~$2 TRILLION. If things don’t change, this will lead to a failure of tens of thousands of American businesses and the laying off of millions of employees. We will also have mass shortages this summer as the goods don’t show up (remember stocking toilet paper and other household goods).
The first ships carrying goods paying the duties arrived last week. And the decline in freight arrivals will hit in the coming weeks. Companies stocked up on inventory in anticipation of May 2nd, so it will take a while before shortages hit.
If Trump reverses course very soon, he can head off the worst of this catastrophe. But everyday it gets worst. Soon we may find ourselves in a bullwhip scenario where Trump relaxes the tariffs, all those cancelled orders get rebooked creating a huge surge. And with all the cancelled services and repositioned vessels, there won’t be enough throughput in the ocean network to keep up. Remember when container rates from China to the U.S. hit $20,000+ at the height of COVID?
Breaking Down the Data
Two fascinating charts from my friends at William Blair Equity Research: This first one visualizes how starting in 2019 with the original China tariffs, most companies have made notable progress moving production out of China. Roughly 20% of textile and apparel imports to the U.S. still come from China, down from a third in the decade leading into 2020.
William Blair Equity Research
This second one shows how China contributes 72% of sporting goods and toys imports (down from 81% in 2018), 44% of household appliances imports (down from 54% in 2018), 29% of furniture imports (down from 57% in 2018), and only 9% of auto parts imports (down from 13% in 2018).
William Blair Equity Research
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