Updates with Trump shutting a trade loophole

By Casey Hall

Feb 5 (Reuters) - U.S. President Donald Trump this week shut a trade loophole that has been used to ship low-value packages duty-free from China, the "de minimis" exemption on import tariffs.

Trump's halt to Section 321 de minimis is part of his implementation of an additional 10% tariff on China and 25% tariffs on Canada and Mexico, which were paused for a month.

Trump accuses China of unfair trade practices and blames it for a crisis over the deadly drug fentanyl.

WHAT IS DE MINIMIS?

De minimis, a legal term referring to matters of little importance, describes the U.S. waiver of standard customs procedures and tariffs on imported items worth less than $800 that are shipped to individuals.

It is one of the most generous such exemptions in the world: the EU de minimis threshold, for example, is 150 euros ($156).

The U.S. has used de minimis since 1938 to reduce administrative burdens. During Barack Obama's presidency, Congress quadrupled the waiver from $200, facilitating an explosion in the number of exempted packages entering the country. Shipments claiming de minimis have soared more than 600% over the past decade to over 1 billion items in fiscal 2023, according to Customs and Border Protection data.

WHY IS DE MINIMIS CONTROVERSIAL?

Contentions largely concern U.S. trade imbalances and the synthetic opioid fentanyl - which is fuelling a national epidemic that killed nearly 75,000 people in 2023.

Reuters reporters last year found they could easily import the core precursors for at least 3 million fentanyl tablets - with a potential street value of $3 million – at a cost of $3,607.18. The shippers successfully mislabelled the packages as, for instance, electronics.

Legitimate products too are controversial as Trump ramps up his rhetoric against China, with which the U.S. has its largest bilateral trade deficit, at $279 billion as of 2023.

Big beneficiaries of de minimis include online retailers that ship goods mainly from China, such as Shein, PDD Holdings-owned PDD.O Temu and Alibaba's 9988.HK AliExpress. Their growth prompted U.S. rival Amazon AMZN.O to start its own discount service, Haul, allowing marketplace merchants to ship $5 accessories and other items directly from China using de minimis.

Shein declined to comment on possible changes to U.S. de minimis policy. In 2023 the company called for de minimis reform "to create a level, transparent playing field – where the rules are applied evenly and equally". Temu, AliExpress and Amazon did not respond to requests for comment.

Critics of de minimis also say it lets companies evade tariffs on Chinese goods and customs inspections under a law banning products made with forced labour.

CHINA GDP IMPACT

China exported $240 billion in direct-to-consumer goods benefiting from de minimis worldwide last year, accounting for 7% of its overseas sales and contributing 1.3% of gross domestic product, according to Nomura estimates.

The brokerage forecasts that eliminating the U.S. threshold would slow Chinese export growth by 1.3 percentage points and GDP growth by 0.2 point, with a significantly bigger hit if Europe and Southeast Asia also removed their minimum requirements for customs duties.

China's most exposed sectors include apparel, which makes up 35% of China's direct-to-consumer exports by value, consumer electronics at 22%, home decor at 17% and beauty products at 7%, Nomura reckons.

($1 = 0.9639 euros)

(Reporting by Casey Hall in Shanghai; Editing by William Mallard and Lincoln Feast.)

((casey.hall@thomsonreuters.com))