In a significant move to create a level playing field for American retailers, the United States has officially closed the “de minimis loophole,” a trade provision long exploited by foreign e-commerce platforms such as Temu and SHEIN. This decision is part of former President Donald Trump’s broader efforts to address trade imbalances, curb illicit fentanyl trafficking, and strengthen national security.

Shein has recently restarted its operations in India in partnership with Mukesh Ambani-led Reliance Industries Ltd. Trumps crackdown against these e-commerce platforms like Shein can impact on the business of Reliance And Shien partnership in India.

The de minimis rule, introduced in 1938, allows goods valued under $800 to enter the US without incurring import duties, requiring customs declarations, or undergoing detailed inspections. This threshold was raised from $200 to $800 during President Barack Obama’s administration, leading to an influx of low-value imports, particularly from e-commerce platforms.

Compared to global standards, the US de minimis threshold is exceedingly generous. For instance:

The Trump administration highlighted two critical reasons for suspending the de minimis exemption for China, Canada, and Mexico:

1) Curbing Fentanyl Inflows

The opioid crisis in the US has reached alarming levels, with fentanyl contributing to nearly 75,000 overdose deaths in 2023, according to the CDC. Chinese suppliers have been accused of using the de minimis rule to ship fentanyl precursors into the US, often through Mexico. A Reuters investigation revealed that these shipments frequently bypassed rigorous inspections, enabling the entry of illegal substances. By halting the de minimis exemption, the US aims to tighten border controls and limit the trafficking of dangerous chemicals.

2) Targeting Chinese E-commerce Giants

Chinese platforms like SHEIN and Temu leveraged the de minimis route to ship low-value goods directly to US consumers tariff-free, giving them a significant advantage over American retailers. For example, in 2022, US companies like GAP and H&M paid hundreds of millions in import taxes ($700 million and $200 million, respectively), while firms like Temu paid virtually none. Closing this loophole forces foreign e-commerce players to pay tariffs, restoring fairness in the competitive landscape.

This suspension is expected to disrupt supply chains and increase operational costs for Chinese e-commerce companies, potentially leading to higher prices for consumers. However, the policy is narrowly focused, applying only to imports from China, Canada, and Mexico, leaving other trade partners unaffected.

Traditional US retailers hope this measure will restore a more equitable market, ensuring all businesses adhere to the same rules. However, the policy is likely to exacerbate tensions in US-China trade relations and strain ties with Canada and Mexico.

The closure of the de minimis loophole is a game-changer for global e-commerce, compelling companies like Temu and SHEIN to reconfigure their supply chains and adjust pricing strategies. Simultaneously, it strengthens border security to address the opioid crisis and ensures a fairer competitive landscape for American retailers.