The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, Feb 5 (Reuters Breakingviews) - President Donald Trump opened a Pandora’s box. His decision to eliminate a tax exemption on small parcels from China, and potentially Mexico and Canada, threatens to set off a chain of unpredictable and costly events.
As with most of his executive orders, this latest one is blunt and bewildering. A 10% duty on goods from China also ends a decades-old de minimis provision that exempts items worth $800 or less from duties, ostensibly because Trump fears it is exploited to ship deadly fentanyl into the country.
The U.S. Postal Service was among those vexed. It suspended all inbound packages from China and Hong Kong, only to quickly reverse itself and resume accepting them on Wednesday.
Even so, the repercussions for e-commerce are significant. The number of packages shipped worldwide under the de minimis exemption increased over the past decade by more than 600%, to some 1.3 billion for the fiscal year ending September 2024, according to U.S. customs officials. And in 2022, 83% of e-commerce imports were small enough to be spared the taxes, per trade authorities.
China alone accounts for more than one-third of small parcels entering the United States, the National Bureau of Economic Research reckons. This hefty sum partly reflects the rise of popular fast-fashion vendors Shein, which is aiming to go public, and rival Temu, owned by $150 billion PDD.
They’re not alone taking advantage of the exemption, however. Amazon.com AMZN.O does, too, including with Haul, its answer to Temu. About a quarter of the online retailing giant’s revenue is exposed to China, Morgan Stanley analysts say. Also affected will be eBay EBAY.O, Etsy ETSY.O and others, along with the many small merchants that set up stall on the sites.
U.S. shoppers, in large part, will shoulder the burden. A $50 parcel could cost twice as much after factoring in new brokerage fees, paperwork and tariffs, the National Foreign Trade Council industry group estimated. Workarounds could easily lead to new problems.
For example, it will be expensive for companies that seek to relocate manufacturing out of China, or to accelerate existing plans, to places that can ship smaller packages duty-free. Reconfiguring supply chains this way would total $1 trillion over five years, according to a 2020 Bank of America report. And there’s no guarantee those countries won’t just get hit, too, as part of the president’s sweeping trade agenda. Retaliatory taxes also may further punish U.S. businesses and consumers. Bad things are coming in these small packages.
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CONTEXT NEWS
The U.S. Postal Service on Feb. 5 resumed accepting parcels from China and Hong Kong after a temporary suspension that had followed executive orders issued by President Donald Trump on Feb. 1 canceling a long-standing provision that allows items worth $800 or less to be shipped duty-free to the United States. The directives apply to goods sent from China, Canada and Mexico.
US imports of small duty-free packages are spiking https://reut.rs/4grqB3d
(Editing by Jeffrey Goldfarb and Pranav Kiran)
((For previous columns by the author, Reuters customers can click on SABA/jennifer.saba@thomsonreuters.com))
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