Why Temu's bargain prices are about to hit a tariff wall

President Trump has signed an executive order that ends the “de minimis” tariff exemption for low-value imports from China and Hong Kong. This policy change, which will take effect on May 2, 2025, is set to have a ripple effect across the e-commerce world, especially for sites like Temu that rely on affordable, small shipments to keep prices low.

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Here’s what it all means and how it will most likely impact you, the consumer. 

What exactly is de minimis? 

In simple terms, it refers to a threshold below which certain regulations, taxes, and inspections do not apply. The idea is that imported goods of very little value are not worth the administrative cost of processing.

For decades, the de minimis rule has acted as a backstage pass for small packages entering the US. It became law in the US Tariff Act of 1930, allowing items valued at $800 or less to bypass customs duties and lengthy inspections. The level used to be $200, but it rose to $800 in 2016, making it even easier and cheaper for companies to import goods. 

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The de minimis exemption has become particularly relevant in recent years, as online shopping has exploded with Chinese direct-to-consumer retailers such as Temu. They have grown rapidly by shipping countless low-cost items directly to US consumers. The de minimis rule was a secret weapon they used to help drive down costs and boost sales.

According to Congress.gov, de minimis shipments to the US rose from 153 million in 2015  to 1 billion in 2023. Reuters reported that of the 122 million de minimis shipments to the US in January, 89 million were from China alone. 

Why is Trump closing this loophole?

President Trump’s administration decided to close this loophole for several reasons. First, there was growing concern that the de minimis rule was being exploited not just for consumer goods but also for other, more dubious items.

Trump framed the closure of the loophole as a measure to combat the flow of synthetic opioids into the US, especially fentanyl, which he claimed is often manufactured in China. In his statements, Trump said low-value shipments from China had been exploited by drug traffickers to bypass US customs checks. By closing this loophole, the government aims to curb these illicit activities. In other words, it’s a move to protect public health.

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However, many trade experts and analysts suggest that the real reasons for closing the loophole are more related to economic and trade policy rather than public health. They argue that Chinese companies have increasingly exploited the de minimis rule, leading to a surge in low-cost imports that have hurt US manufacturers.

Critics of de minimis, such as former North Carolina Representative Dan Bishop, call these imports “cheap crap.” In the Congressional Record, he said Temu and Shein account for one-third of all de minimis shipments. “Temu appeared on the American scene only in 2022, Shein not much earlier,” Bishop noted. “You can go buy sneakers on Temu for $5.” 

By ending de minimis, the Trump administration hopes to generate more tariff revenue, strengthen domestic industries and ensure foreign goods face the same scrutiny as American products. While the opioid crisis is a major concern, closing the loophole is seen as a step to level the playing field for US businesses and create a more equitable trade system.

What will happen to Temu now?

For online retailers like Temu, the new rules mean that low-value packages, which previously sailed through customs, will now face duties and inspections. Specifically, goods sent through the international postal network will incur a duty of either 30% of their value or a flat fee, starting at $25 per item and increasing to $50 after June 1, 2025.

This added cost could force these retailers to rethink their pricing strategies. The impact will likely be significant for Temu, known for its bargain prices. The extra tariffs may either reduce profit margins or lead to higher prices for consumers, potentially altering the value proposition that attracted shoppers in the first place.

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The new policy may also prompt companies like Temu to diversify their supply chains. With Chinese shipments facing new hurdles, there could be a push to source goods from other countries or increase domestic production. This transition could be bumpy, with potential short-term issues like inventory shortages.

What does all this mean for you?

In a nutshell, you might notice that some previously rock-bottom-priced items now come with a heftier price tag. The immediate effect would be higher prices and possibly delays in delivery times. Carriers will now face stricter reporting requirements, with every package being properly processed, which could add time to the shipping process.

Also: How much tech can I get from Temu for $100 (and is it any good)?

While the end of de minimis is intended to protect American consumers by preventing illicit activities and increasing tariff collections, it will likely mean that retailers will have to pass some of the costs and burdens on to customers.

It’s important to note that the closure of this loophole will affect many other companies, including major retailers like Wayfair, which analysts estimate imports up to 40% of its products from China, much of it valued under $800.  

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