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

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.

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.

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.

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.

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.

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).

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.

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."

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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