What is the US’ de minimis exemption and why does it matter for global trade?

Tension between the US and China in the way of global trade escalated this week after US president Donald Trump announced new tariffs of 10 percent on imports from the region. Pressure then heightened later in the week when the Trump administration announced that China would no longer be eligible to avoid such tariffs by trading under the US’ ‘de minimis’ policy.

On February 4, Ways and Means committee chairman, Jason Smith, expressed his support for the decision, stating in a press release that “abuse” of the de minimus privilege had denied the US government billions of dollars in additional revenue “while unfairly disadvantageing American manufacturers”. “The Trump administration is leaving no stone unturned when it comes to restoring some backbone to America’s trade policies,” he continued.

De minimis is a trade loophole that dates back to the 1930s, with around 100 countries currently benefiting from the exemption. It allows items imported into the US under the value of 800 dollars to enter free of duty and taxes, instead being “subject to expedited clearance processing”. The bottomline increased from 200 dollars to 800 dollars in 2016 under former president Barack Obama.

The policy had already come under scrutiny from Trump’s predecessor Joe Biden, whose own administration also threw doubt over the future of de minimis with a suggestion to also close the loophole entirely. For Trump, however, the decision to potentially scrap the policy aligns with his ‘Made in USA’ mission, intended to revitalise the country’s domestic production and make its economy less reliant on imports.

Tariffs on Chinese goods could be ‘double blow’ for UK retailers

Akin to the implementation of tariffs on Chinese imports, halting the de minimis policy builds on efforts to curb the flow of cheap goods from countries like China, which may then be discouraged from importing low-value goods that could eventually be deemed unviable. It throws into question the positioning of Chinese fast fashion giants Shein and Temu, which were said to have accounted for about 17 percent of the US discount market in 2023, according to a report by the Congressional Research Service (CRS).

Such shifts have triggered somewhat of a restlessness on the global front, impacting global stock markets and triggering retaliatory actions from China. The country’s Ministry of Finance announced a new round of tariffs on US imports, including a 15 percent tariff on certain fuel sources. It has also added US companies like Calvin Klein parent PVH to a list of “unreliable entities”, which will make it more difficult for the retail giant to operate and trade in and with the region.

Halting the policy in its entirety could also cause issues for other regions that may end up in the crossfire of this US-China trade war. In a comment to FashionUnited, RSM UK customers and international trade partner, Brad Ashton, said: “However, if these goods aren’t being imported into the US, other jurisdictions, such as the EU and UK, could see an increase in cheap goods flooding the market. The equivalent customs exemption that allows overseas businesses to avoid duties on goods worth less than 135 pounds in the UK could be in danger following the earlier decisions to remove import VAT relief on such consignments; this could level the playing field for UK retailers.

“However, the threat of tariffs on Chinese goods imported into the US may still affect UK retailers if stock is made in China but fulfilled and shipped from the UK, as the goods will still be subject to tariffs due to the origin of the goods which could present a double blow to UK retailers.”