Cheap Chinese parcels to the US face higher costs after de minimis ends.
Introduction: A small news, a big earthquake US de minimis China
If you have ever done online shopping, especially from Chinese websites like AliExpress Shein Temu or Wish, then you must have noticed a special thing. And you ordered goods at very small prices and it came directly to your door without any additional tax or customs duty. And the reason for this was an old policy of America which was called De Minimis. But now this facility is almost going to end for goods coming from China. And the officials of this Trump administration have made it clear that this is not a temporary step but a permanent decision. And this is not just a matter of America and China. This decision will resonate throughout the entire global economy and can directly impact the trade policies, industries, and even common customers of countries like India.
Meaning and Objective of US de minimis China
De Minimis is a Latin word which means of negligible value or small matter. In the world of international trade, they fix a minimum value for the goods to be imported. Customs Duty is not levied on goods of lesser value. But in the US, this limit was fixed at $800 per parcel.
That is, if any person or company is importing goods worth less than $800 in the US, then no customs duty will be levied on it. And the main objective of this rule was to reduce the administrative burden as well as to calculate, collect and keep account of duty on hundreds of thousands of parcels of $20-$30 is a very big and expensive task for the Customs Department. And many times the amount of duty is even less than that administrative cost. Therefore, they made the system efficient by giving exemption to small parcels.
How did China take advantage of this rule?
China took full advantage of this rule. Companies like Shein Temu and AliExpress made full use of this $800 discount. Their business model was based on this. Direct access to the customer, which these companies used to send parcels directly from China to the homes of American customers. Very cheap goods online, which were available at very low prices due to cheap labor and large-scale production in China. Benefit of no tax, since there was no duty on parcels less than $800, these companies were able to keep the prices of their goods even lower. The price of a $10 dress remained the same $10, no additional tax was added to it. But the result was that millions of small parcels started coming to America from China every day, which led to a flood of Chinese goods in the American market.
The long shadow of the US-China trade war
A trade war has been going on between the US and China since the time of former President Donald Trump. Trump believed that China was stuffing goods in the American market with unfair trade policies and harming American companies and employees. Under this war, America had imposed heavy duties on hundreds of Chinese products. But the de minimis rule was proving to be a big loophole in this trade war. Chinese companies were paying duty on big products, but were continuing to enter America without any duty through small parcels. Therefore, closing this loophole became a big priority of the Trump administration. Along with this, the pressure on American industries, which is small and medium businesses (SMEs) of America, had been raising their voice against this rule for a long time.
Talking about security concerns US de minimis China
The US de minimis China rule had become not only an economic but also a security risk. Along with smuggling opioids and narcotics, American officials said that they easily smuggled deadly narcotics like Fentanyl using this route. Customs officials found it almost impossible to scan and check so many parcels. Additionally, smugglers imported fake and copied goods on a large scale through this route, such as clothes, electronics, and medicines. Moreover, the US alleges that they make products by forcing the Uighur Muslim minorities in China’s Xinjiang province to work under forced labor conditions. Due to de minimis, it was difficult to ban these products because it was difficult to track their exact origin.
Wide effects of this decision US de minimis China
This decision is like a stone that someone threw into a pond. The world will see its waves in America, China, and beyond. The biggest blow from this decision will be to those Chinese e-commerce companies whose foundation was based on this exemption. Along with this, huge losses to Shein and Temu. The growth of companies like Shein and Temu will be directly halted. The prices of their goods may increase by 25-40%, which will end their image of cheap goods. Analysts expect China’s exports to the US, especially in the field of small consumer goods, to experience a huge drop. Along with this, Chinese companies are now looking for alternative ways to build warehouses in the US or send goods through third countries like Mexico, Vietnam. But this will definitely increase their cost.
Effect on global economy and supply chain. Changes in the supply chain which this decision will bring about in the global supply chain
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