US shoppers will face higher prices to purchase goods from China after the de minimis exemption — a tax-free loophole that allowed low-cost parcels to enter the US duty-free — is scheduled to end in May.

US President Donald Trump signed an executive order on April 2 to eliminate de minimis at 12:01 am EDT on May 2. An amendment was issued on April 8, to include higher duties on goods.

The administration initially described its move as a "critical step in countering the ongoing health emergency posed by the illicit flow of synthetic opioids into the US".

At least 75 percent of all the packages that came to the US under de minimis were from China in 2018, according to Baird Equity Research. Today it is estimated at 60 percent.

Discount stores Temu and Shein must now adapt quickly to new market conditions to remain relevant with US shoppers if de minimis is eliminated, said an analyst.

"They really should begin to change and develop a new business model," Z. John Zhang, a professor of marketing at The Wharton School of the University of Pennsylvania, told China Daily. "There is absolutely no other country in the world that's been better at taking advantage of this loophole."

The end of the rule comes as concerns grow over how prices might rise due to the tit-for-tat trade dispute that has seen the US place tariffs on Chinese imports that could reach up to 145 percent.

China responded Friday with its own 125 percent levy on US goods, starting April 12.

On April 9, Trump paused tariffs on all countries for 90 days except on China, which he raised.

In fiscal year 2024, at least 1.36 billion shipments utilized de minimis, an increase of 637 million in 2020, according to US Customs and Border Protection (CBP).

Together, Shein and Temu account for 17 percent of the discount market in the US. The change will impact shoppers who are used to getting low-cost items such as T-shirts, dresses, electronics and other supplies.

Hundreds of TikTok users expressed concern over the changes under a video by Chelsea, an influencer in Detroit.

"Shein needs to open stores here!" posted one user.

"Glad I ordered my clothes last week," wrote another.

"Buy now before May!" said a third.

US consumer sentiment fell 11 percent to 50.8 percent, the University of Michigan found in its latest survey. It was the second-lowest figure on record since 1952.

To further deal with changes to de minimis, Zhang suggested that it will be important for Chinese companies to move closer to American customers. That means they could build more warehouses in the United States and maintain the best parts of fast fashion such as quick delivery.

Both Shein and Temu, which have a plethora of Chinese vendors, have begun to work with US sellers and also bring more inventory locally to get to customers nearby.

The push forward to end the tax-free loophole came after the US commerce secretary confirmed to the Trump administration that sufficient systems were in place to collect tariff revenue.

The original executive order details that any "imported goods sent through means other than the international postal network that are valued at or under $800 and that would otherwise qualify for the de minimis exemption will be subject to all applicable duties, which shall be paid in accordance".

The US Postal Service must report the shipments to CBP and collect duty payment and remit duties.

The April 8 amendment to the order increased the duties on the low-value parcels to be collected from 30 percent to 90 percent and from $25 to $75, and an increase on June 1, from $50 to $150.

"With China, it's not just fast fashion that matters," Zhang said. "In this case, it is really all kinds of different goods under the value of $800."

In 2018, Chinese exports under de minimis totaled $5.3 billion but rose rapidly to $66 billion in 2023, the Congressional Research Service found. Many of the parcels are shipped directly from China to customers.

It could cost Americans between $11 billion and $13 billion if the rule is eliminated, according to "The Value of de Minimis Imports" by the UCLA Department of Economics and Yale University.

The de minimis exemption, Section 321 of the Tariff Act of 1930, was first created in 1938. Its initial aim was to allow Americans to bring back souvenirs from abroad.

It allowed for small packages valued at less than $5 (the equivalent of $160 today) to get to customers quickly and efficiently. The value allowed went from $200 in 1994 to $800 in 2016 per person, per day.

The Trump administration initially paused the rule in February, disrupting deliveries as the Postal Service announced it would stop accepting parcels from China temporarily. It reversed course 12 hours later, and service was resumed.

"I think given the current environment that if all tariffs and actions stick, you can imagine that the only choices really [for Shein and Temu are] probably automation somehow and production in the US. That is probably the longer-term planning that they need to do."

belindarobinson@chinadailyusa com