A Tariff Loophole Just Closed. What That Means for Online Shopping.

Summary

The Journal: A Tariff Loophole Just Closed. What That Means for Online Shopping

Released on May 2, 2025 | Hosts: Kate Linebaugh, Ryan Knutson, Jessica Mendoza | Produced by Spotify and The Wall Street Journal

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1. Introduction: The End of a Trade Provision

In the latest episode of The Journal, hosts Jessica Mendoza and Shen Lu delve into the significant changes in U.S. trade policy, particularly focusing on the termination of the de minimis exemption and its ripple effects on the world of e-commerce. This pivotal shift, initiated under the Trump administration, is reshaping how consumers shop online and challenging the business models of major and small retailers alike.

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2. Understanding the De Minimis Exemption

De minimis, a Latin term meaning "about minimal things," refers to a trade provision that exempts goods valued at $800 or less from import taxes and duties. Originally designed to simplify the customs process by allowing Americans to bring back small personal items without incurring additional costs, this exemption was expanded in 2016 from $200 to $800.

Shen Lu explains, “The purpose originally was to allow Americans to bring back souvenirs from overseas trips without having to pay tariffs on them” (02:45). Over the years, the de minimis exemption became a staple for both consumers and businesses, streamlining the importation of low-cost goods and fostering a boom in online retail.

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3. Trump Administration's Policy Shift

On February, President Trump announced a pivotal change: the suspension of the de minimis exemption for goods imported from China and Hong Kong, effectively targeting businesses that heavily relied on this loophole. As Jessica Mendoza states, “The Trump administration is ending today something called the de minimis exemption” (00:59), aiming to close what was deemed a loophole benefiting foreign competitors and facilitating illicit activities, including the smuggling of synthetic opioids like fentanyl.

This decision led to immediate disruptions, with packages piling up at JFK Airport, reflecting the chaotic transition as companies scrambled to adjust to the new regulations. The move was justified by the administration as a measure to combat the illegal flow of drugs and level the playing field for U.S. businesses.

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4. Impact on Major E-Commerce Players: Shein and Temu

Online giants Shein and Temu emerged as primary beneficiaries of the de minimis exemption, accounting for approximately 30% of de minimis packages from China. These companies employed a direct-to-consumer model, shipping individual, low-cost orders directly to U.S. customers, which typically fell below the $800 threshold.

Shen Lu highlights, “Shein and Taemu use what's called a direct consumer business model... most shipments will fall under the de minimis exemption” (05:45). This strategy allowed them to maintain ultra-low prices, significantly boosting their popularity in the American market.

However, with the elimination of the exemption, both companies face increased costs. An analyst cited by Shen Lu predicts, "Shein and Temu sales to slide into negative territory this week" (07:07). In response, these companies have begun adjusting their operations by raising prices, adding import charges, sourcing from U.S. warehouses, and even shifting some manufacturing out of China to mitigate the financial strain.

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5. Struggles of Small Online Retailers: The Case of Kuru Footwear

While large e-commerce platforms have the resources to adapt, smaller businesses like Kuru Footwear are experiencing profound challenges. Based in Salt Lake City, Kuru specializes in comfortable orthopedic shoes and relies entirely on online sales. With over 60% of their products manufactured in China, the removal of de minimis has imposed hefty tariffs on each pair sold.

Matt Barnes, CFO of Kuru Footwear, shares the gravity of the situation: “During the calendar fiscal year of 2024, we saved over $2 million in tariffs” (11:09). Now, with the exemption gone, a $175 pair of shoes incurs a staggering $302 in tariffs. Barnes warns of an existential crisis if these tariffs remain: “If the tariffs remain in place as they are today... it's going to become existential” (13:01).

Kuru has attempted to counteract these effects by increasing prices, charging for shipping, and sourcing some products locally. However, the financial burden threatens their sustainability, as the company lacks the volume to offset the high tariff costs through alternative strategies like relocating manufacturing to the U.S.

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6. Business Responses and Mitigation Strategies

In anticipation of the policy change, both Shein and Temu proactively adjusted their operations. Shein redirected advertising budgets away from the U.S. market and raised product prices, while Temu began sourcing products from U.S. warehouses to bypass the tariffs. Additionally, both companies have been exploring manufacturing shifts outside of China, with Shein notably engaging suppliers in Vietnam.

Kuru Footwear, unable to pivot on the same scale, underscores the uneven playing field created by the policy. Barnes emphasizes the need for predictability in business operations: “Businesses need predictable opportunities to make money. When the economy... is not predictable, it's really hard for a business like ours to provide a product or service at a reasonable price to the consumer” (13:48).

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7. Broader Implications and Future Outlook

The suspension of the de minimis exemption signifies a crucial turning point in U.S. trade policy, with far-reaching implications for the e-commerce landscape. While major players like Shein and Temu are finding ways to adapt, smaller businesses face an uphill battle to survive under the new tax regime.

The administration's stance suggests a potential expansion of these measures to other countries in the future, increasing uncertainty for global online retailers. As businesses navigate this changing environment, the episode highlights the delicate balance between protecting domestic industries and maintaining the accessibility of affordable goods for consumers.

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Notable Quotes

• Jessica Mendoza [00:05]: "President Trump's trade war with China has made its way into your online shopping cart."

• Shen Lu [05:32]: "Shein and Taemu use what's called a direct consumer business model."

• Matt Barnes [10:07]: "Kuru Footwear... sells comfortable orthopedic shoes."

• Matt Barnes [13:48]: "Businesses need predictable opportunities to make money."

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Conclusion

The termination of the de minimis exemption marks a significant shift in U.S. trade policy, directly impacting the affordability and accessibility of online shopping. As large e-commerce platforms strive to adjust their models, smaller retailers like Kuru Footwear face existential threats, highlighting the broader consequences of policy changes on the diverse landscape of online commerce.

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For more insights and stories about money, business, and power, subscribe to The Journal on Spotify or wherever you get your podcasts.

Transcript

[Jessica Mendoza]

President Trump's trade war with China has made its way into your online shopping cart. Some of the most popular websites where you might find yourself paying more are Shein and Temu.

[Shen Lu]

Has anyone looked at their Shein cart this morning?

[Jessica Mendoza]

My $18 free shipping Temu order that I tried to place last night had a $27 import charge. Import charge is $55. So I just watched the prices in my Shein cart triple. These added charges are largely a reaction to the Trump administration's high tariffs on goods from China. Right now, those tariffs are hitting an average of 165%. But there's a second reason the price tags on these products are going up. And it has to do with something called de minimis. De minimis.

[Matt Barnes]

De minimis.

[Jessica Mendoza]

De minimis.

[Unnamed Speaker]

It's called the de minimis threshold.

[Jessica Mendoza]

The Trump administration is ending today something called the de minimis exemption. It kind of sounds like a Harry Potter spell, but it's actually a trade provision. Basically, it means companies don't have to pay taxes on goods they're bringing into the US as long as those goods are worth $800 or less. But as of today, the Trump administration has taken away this tax exemption for goods from China and Hong Kong.

[Shen Lu]

Now, for these companies, the elimination of de minimis is basically a double whammy. They didn't have to pay taxes when they sell to US Consumers. Now they have to. And the amount of tax is exorbitant.

[Jessica Mendoza]

Welcome to the Journal, our show about money, business, and power. I'm Jessica mendoza. It's Friday, May 2nd. Coming up on the show, what a world without de minimis means for E Commerce. Did you realize that you were going to have to be an expert on de minimis?

[Shen Lu]

Yeah. No.

[Jessica Mendoza]

That's our colleague, Shen Lu. Lately, she's been covering the administration's efforts to roll back the de minimis exemption. De minimis, by the way, is a Latin phrase, and it refers to things that are small or trifles. What is the purpose of the exemption originally? Like, who was supposed to benefit from it?

[Shen Lu]

The purpose originally was to allow Americans to bring back souvenirs from overseas trips without having to pay tariffs on them.

[Jessica Mendoza]

De minimis was designed to make things simpler so that customs wouldn't have to inspect and tax every small item that American travelers brought back. For a long time, de minimis applied to goods under $200. Then in 2016, Congress raised the limit to $800. And that new limit caught the attention of businesses because it gave them a way to avoid paying taxes on low.

[Shen Lu]

Cost Imports and the use of de minimis exemption has ballooned over the years. About 1.4 billion shipments using the de minimis provision entered the US in 2024. That was up from 637 million four years earlier.

[Jessica Mendoza]

The exemption's popularity attracted government scrutiny. Since 2022, Congress has tried to get rid of the de minimis exemption, but those efforts didn't get far. When Trump announced new tariffs on goods from Mexico, Canada and China back in February, he also said he would take away the de minimis exemption for all three countries. He called de minimis a loophole that gave other countries an advantage over the US and allowed illegal drugs to be smuggled in.

[Shen Lu]

They're sending massive amounts of fentanyl, killing.

[Unnamed Speaker]

Hundreds of thousands of people a year with a fentanyl.

[Shen Lu]

So the stated rationale is to stem the illegal flow of synthetic opioids, which is fentanyl, into the US And Trump has declared that as a national emergency, Mexico is the main source of the drug. But Trump also blamed Beijing for not doing enough to stop the chemical ingredients from flowing out of China.

[Jessica Mendoza]

China denies that it's at fault for the widespread use of fentanyl. It says that the failure is with the US Which China says hasn't been able to curb domestic addiction. Trump's order to suspend de minimis in February led to a lot of confusion. In the days that followed, something like a million packages piled up at JFK Airport in New York. A week later, Trump delayed the suspension to May 2, but limited it to goods from Hong Kong and China only. Already, companies are feeling the pain, especially those that have built business models around the de minimis exemption.

[Shen Lu]

Many E commerce companies have used this exemption over the past years, and two big beneficiaries of de minimis have been Shein and Taemu.

[Jessica Mendoza]

Shein is a fast fashion retailer that sells extremely cheap clothing. Temu is more like Amazon, where third party businesses sell all kinds of stuff. So how does De Minimis help these two companies?

[Shen Lu]

She and Tae Mu use what's called a direct consumer business model. When a US Consumer places an order on their website, Temu or Shein will just ship the individual order directly to the US consumer. And since their prices are cheap, most of the orders are under $800. Last I checked, the average order value was below $50 for both companies. So most shipments will fall under the de minimis exemption. So the company does not have to pay taxes on the orders.

[Jessica Mendoza]

Compare this to retailers like H and M or Zara. Those companies order big bulk shipments that are worth A lot more than $800.

[Shen Lu]

And these bulk shipments don't qualify for De minimis. And so the companies end up paying taxes on these shipments when they enter.

[Jessica Mendoza]

The US Avoiding these taxes has helped Shein and Taemu keep prices ultra low, which is one of the reasons the companies are so popular in the U.S. shein and Taemu are the biggest beneficiaries of the tax provision, accounting for 30% of de minimis packages from China. But now with De Minimis going away, it's going to hit their business model. One analyst told Shen Liu that he expects Shein and Taemu sales to slide into negative territory this week.

[Shen Lu]

It's just the US has been such a crucial market. It's both companies, one of their top markets and wealthier consumers and who buy more frequently from them. So it would be a huge market to lose. And so it's probably going to be a struggle for them to maintain the market to serve the consumers here in the US.

[Jessica Mendoza]

In anticipation of De Minimis going away, Shein and Taemu started making changes. They've pulled back on ad dollars spent in the US Redirecting instead to other markets. Shein has raised its prices and Temu for a while added an import charge to its products. Now the company is focused on sourcing from US Sellers instead of from China.

[Shen Lu]

Taemu had from a year ago started recruiting sellers with inventory in the US exactly mitigate the risk of de Minimis going away. So more than a third of Temu's products sold in the US now are in local warehouses instead of coming in through De Minimis.

[Jessica Mendoza]

And both companies have ramped up efforts to move manufacturing out of China starting in February.

[Shen Lu]

Shein has talked to some major suppliers and encouraged them to set up production in Vietnam. They've also considered the option of manufacturing in the US but we all know that it's very difficult to shift manufacturing back to the U.S. it could take months and months and months and it's a lot more expensive to do that.

[Jessica Mendoza]

But while Shein and Temu are some of the most well known users of De Minimis, small online retailers are also bracing themselves. Many of those companies won't be able to adapt in the same way as the E commerce giants. After the break, one US business says this could be an existential crisis.

[Matt Barnes]

Hey, wouldn't it be great if life came with a remote control? You know, you could hit pause when you needed to or hit rewind. Like that time you knocked down that wasp's nest.

[Jessica Mendoza]

Uh oh.

[Matt Barnes]

Well, life doesn't always give you time to change the outcome, but prediabetes does. With early diagnosis and a few healthy changes, you can stop prediabetes before it leads to type 2 diabetes. To learn your risk, take the one minute test today at doihaveprediabetes.org, brought to you by the Ad Council and its Prediabetes Awareness Partners.

[Jessica Mendoza]

One company that's bracing for the impact of losing De Minimis is called Kuru Footwear. It's based in Salt Lake City, Utah, and it sells comfortable orthopedic shoes.

[Unnamed Speaker]

We really try to be a brand that does not identify as what you would call the traditional grandpa shoes.

[Jessica Mendoza]

That's Matt Barnes, Kouroo's chief financial officer.

[Unnamed Speaker]

We really try to be a brand that can be attractive to just about anybody and to relieve the pain that a lot of people on a daily basis. I wear Kuru's every day. I've got them on right now.

[Jessica Mendoza]

Which shoes do you have on right now?

[Unnamed Speaker]

I'm wearing Adam 2. At the moment.

[Jessica Mendoza]

Over 60% of Kuru's shoes are made in China, and the company sells them entirely online. Like Shein and Taemu, it uses a direct to consumer business model. How does the De Minimis exemption fit into your business model?

[Unnamed Speaker]

Yeah, De Minimis is a great advantage for us. For example, during 2024, we shipped 100% of our products to customers in the US and we're able to avoid the duties and tariffs through that method.

[Jessica Mendoza]

And how much money has De Minimis saved you in that time?

[Unnamed Speaker]

During the calendar fiscal year of 2024, we saved over $2 million in tariffs.

[Jessica Mendoza]

Wow. With De Minimis now gone, Kourou is on the hook for those tariffs. Can you give an example of how much you have to pay in tariffs on a pair of shoes retail?

[Unnamed Speaker]

Yeah, for our Chinese product right now. For our sneakers, for example, the Atom 2 that I'm currently wearing, the tariff rate is 172.5% as of today.

[Jessica Mendoza]

Can you put that in sort of dollar terms?

[Unnamed Speaker]

Yeah, for sure. So if you assume an example of a pair of shoes at $175, it would be $302 in tariffs.

[Jessica Mendoza]

Again, that's more than $300 in tariffs for a shoe that sells for $175. Kuru has done a number of things to try and mitigate all the costly effects. Last week, the company ran a sale to get rid of inventory and it started to change its pricing.

[Unnamed Speaker]

Without the De Minimis limits and with the current tariff situation, we have had to raise prices. We have had to start charging for shipping, and it's painful. We've already seen an impact as a result of raising prices, and we just don't have the margin to recover all of the tariff costs.

[Jessica Mendoza]

Kuru already manufactures some of its products outside of China, but I asked Matt if they were considering moving even more of their operations to other countries, including to the U.S. he said that's not a realistic option for the company. It would just be too expensive and take too much time to build the factories they'd need.

[Unnamed Speaker]

The Nikes of the world or the Adidas probably could work something out like that. Right. But we just unfortunately don't have that kind of mass market volume.

[Jessica Mendoza]

At what point do you think these problems will become existential for Kourou?

[Unnamed Speaker]

For the moment, we've been able to mitigate the financial impacts through much of this year. But if the tariffs remain in place as they are today, through, I would say, probably late Q3, early Q4, it's going to become existential. It is very, very troubling and it's going to get very, very expensive very, very quickly.

[Jessica Mendoza]

While the de minimis suspension only applies to China and Hong Kong right now, there is a chance the administration could expand it.

[Unnamed Speaker]

We're trying to look for other places to source and we do know and expect, as has been indicated by the administration, that the de minimis limits will go away for all countries at some point.

[Jessica Mendoza]

Matt, what are you hoping for right now?

[Unnamed Speaker]

Well, the ideal state would be no tariffs, Right. But of course, you know, we know that there's an intent behind what the Trump administration is trying to do. But right now we just don't know what's going to happen and when it's going to happen. Businesses need predictable opportunities to make money. When the economy or the environment is not predictable, it's really hard for a business like ours to provide a product or service at a reasonable price to the consumer. If we can predict it, we can build an Endura cost model. It may be painful, it may not be what we want, but at least it's predictable. With the elimination of the de Minos, it's been really, really tough for us to determine what the next step should be.

[Jessica Mendoza]

That's all for today. Friday, May 2 the Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Esther Fung, Raphael Huang and Liz Young. The show is made by Katherine Brewer, Pia Gadkari, Carlos Garcia, Rachel Humphries, Sophie Cotner, Ryan Knudsen, Matt Kwong, Kate Linebaugh, Colin McNulty Annie Menoff, Laura Morris, Enrique Perez de la Rosa, Sarah Platt, Allen Rodriguez Espinosa, Heather Rogers, Pierce Singhy, Jeevika Verma, Lisa Wang, Catherine Whalen, Tatiana Zamis and me, Jessica Mendoza, with help from Trina Menino. Our engineers are Griffin Tanner, Nathan Singapak and Peter Leonard. Our theme music is by so Wiley. Additional music this week from Katherine Anderson, Peter Leonard, Emma Munger, Nathan Singapok and Blue Dot Sessions. Fact checking by Kate Gallagher and Mary Mathis. Thanks for listening. See you on Monday.