Low Hanging Fruit
While headlines are oriented toward incoming President Trump’s tariff policies that have yet to be formulated or implemented, we noticed that a Day 2 EO has called for reviews of a wide variety of trade practices by various agencies in the Executive Suite, with reports due by either April 1 or April 30. They range from evaluating the US/Canada/Mexico Trade agreement to the potential for building an ‘External Revenue Service’ to collect tariffs. Also mentioned under the auspices of the Secretary of the Treasury review is an evaluation of the $800 De Minimis duty exemption available to foreign retailers selling to US citizens. That exemption allows for the duty-free importation of goods valued at $800 or less per person per day and is the driving force that allows companies like Temu (PDD) and Shein (pvt) to sell low-priced goods in the US without paying tariffs.
Many consider this exemption a way for China to bypass tariff regulations, giving them an advantage over US companies like Amazon (AMZN), WalMart (WMT), and Target (TGT) in a broad sense, although the impact is greater on discount retailers like Burlington (BURL), TJ Maxx (TJX), or Ross (ROST). The exemption was raised from $200 to $800 in 2016 to facilitate trade and boost economic activity but also to speed up shipments and reduce the burden on customs processing. According to the US Customs & Border Protection Service, over 4m de minimis shipments enter the US each day, up substantially after the 2016 change, so the elimination of the exemption, while reducing the advantage that low-cost Chinese goods providers have in the US, it would also force an increase in processing time and likely require additional hiring for the customs service. While that aspect of the exemption will go relatively unnoticed should it be eliminated or reduced, the exemption is certainly political fodder and is already the subject of Congressional debate. With a report from the Treasury on the exemption due at the end of April, we expect at least some change in that rule in 2Q. It’s low hanging fruit that plays into anti-China sentiment and has only minor consequences.
Many consider this exemption a way for China to bypass tariff regulations, giving them an advantage over US companies like Amazon (AMZN), WalMart (WMT), and Target (TGT) in a broad sense, although the impact is greater on discount retailers like Burlington (BURL), TJ Maxx (TJX), or Ross (ROST). The exemption was raised from $200 to $800 in 2016 to facilitate trade and boost economic activity but also to speed up shipments and reduce the burden on customs processing. According to the US Customs & Border Protection Service, over 4m de minimis shipments enter the US each day, up substantially after the 2016 change, so the elimination of the exemption, while reducing the advantage that low-cost Chinese goods providers have in the US, it would also force an increase in processing time and likely require additional hiring for the customs service. While that aspect of the exemption will go relatively unnoticed should it be eliminated or reduced, the exemption is certainly political fodder and is already the subject of Congressional debate. With a report from the Treasury on the exemption due at the end of April, we expect at least some change in that rule in 2Q. It’s low hanging fruit that plays into anti-China sentiment and has only minor consequences.
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