So long, farewell, super cheap tariff-free shopping

NPR.

Jess Van Dead makes sterling silver jewellery in Australia.

These are the long leaf earrings.

They have the leaf shape on the front, so it's like a leaf with a stem behind it.

Jess has a business selling her long leaf earrings and her other jewellery on Etsy.

It's called Ethereal, and she's been doing that since 2008.

Oh, it makes us a couple of thousand dollars a month, so that's important to our livelihood.

About 30 to 40% of her customers are American, but about a month ago, that changed.

Jess woke up one morning and was scrolling through social media.

Somebody was like about the de minimis exemption ending and there's going to be tariffs.

And I'm like, what?

The de minimis exemption meant that until now, packages valued less than $800 could come into the U.S.

without tariffs or much inspection.

It was like a tariff loophole.

But in late July, President Trump signed an executive order to get rid of it on August 29th.

I looked into it and promptly freaked out, like, oh my God.

Since that executive order in July, post offices from Australia to Austria suspended shipping to the U.S.

And businesses like Jess Van Den's are now simply saying no to American customers.

This is the indicator from Planet Money.

I'm Darien Woods.

And I'm Waylon Wong.

Today on the show, The End of De Minimus, we explain why this carve-out for small packages ended on Friday, how it's causing such mayhem, and who will be the winners and losers from this abrupt policy swerve.

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A lot of countries have a de minimis exemption for goods coming into the country.

In Latin, de minimis basically means trifles.

Ooh, are you a classics professor?

I'm somebody who looked it up.

Was this in the Odyssey?

To have customs inspectors collecting tariffs from everyday Americans and inspecting every book and every pair of socks is more effort than it's worth.

So up until now, the U.S.

government told everyone, if it's worth less than $800, you can shuffle it through the mail, tariff and duty-free.

And that's how we got Temu.

Basically, yes, and Shein.

You can see that when tariff started rising under the first Trump administration, suddenly it became a lot more attractive to send parcels from China one by one rather than ship in bulk to a warehouse in the U.S.

So there are around 140 million packages sent into the U.S.

in 2015.

Last year, there's more than 1.3 billion, just exponential growth.

This flood of posted goods started to concern certain people in the American economy.

Established brands who have to pay tariffs find it hard to compete with Timu and Xi'an.

And then there's law enforcement, like the government's efforts to stem the flow of drugs into the country.

Derek Lossing is the founder and CEO of Cirrus Global Advisors, a logistics consultancy.

What's driving a lot of this, right, is the U.S.

has found fentanyl and other illegal substances, whether it's medications or even makeups that are not approved by the FDA or nutritional supplements, right?

A lot of this stuff comes into the U.S.

and is not regulated.

Fentanyl was sent into the U.S.

directly in packages from China pre-2020.

But now the vast majority of fentanyl in the U.S.

comes from Mexico at the southwest border, smuggled in vehicles.

It is worth pointing out, though, that both Democrats and Republicans have concerns over the de minimis exemption.

Last year, the Biden administration said the tsunami of packages was making it harder to enforce American laws like consumer safety rules.

The Biden administration also tried to clamp down on certain products using the de minimis exemption, like clothes from China.

So it's not just a brand new idea that came.

I think what's creating some of the challenges right now is how fast it was implemented, right?

So China and Hong Kong got shut off with 30 days notice.

Now the rest of the world got shut off with 30-day notice.

De minimis for China ended in May, the rest of the world last Friday.

And that 30-day notice was what got the Australian jewelry maker Jess Van Den so frantic.

And the big issue wasn't really that she'd have to pay a tariff.

Australia's US tariff rate is 10%,

manageable.

It was that it was really unclear what exactly was going to happen at the border.

The executive order said that goods from most countries, including Australia, would need to have a minimum duty of at least $80 paid at the border for the next six months.

That's more than the full price of many of her rings and earrings.

I just thought, I can't do that.

Like, I can't just keep sending my stuff and my customers not know that they're suddenly going to be whacked with an $80 fee potentially on top of what they've paid.

Like, who would be happy about that?

Nobody would be happy about that.

It's worth pausing here to talk about who actually pays the tariff.

We've talked about how importing businesses pay tariffs.

A big shipment on a freight container, say, has a customs broker.

They work with the American recipient to pay the tariff on the border.

Well, if you, an everyday American, ordered something directly from a seller overseas, you are the importer.

So you are on the hook for duties and tariffs.

The goods only get released from the border once that money is paid.

That's how it works in a lot of countries.

But Derek Lossing, our logistics expert, says getting every recipient of every small parcel arriving in this country to pay up is going to be a nightmare, especially after the $80 minimum duty ends and it changes to whatever the import country's tariff is.

Just from a practical perspective, trying to get hundreds of

recipients like yourself to pay $2.60 to a customs broker for the duty that they owe would be extremely difficult in this case.

In practicality, it's going to be paid by kind of the shipping company.

By the overseas postal service, in other words.

So rather than be stung by thousands or millions of those owed duties and tariffs, postal services for a lot of shipments to the U.S.

decided to to just pause them.

Jess's decision to stop any orders coming from the U.S.

was prescient.

Last Tuesday, Australia Post joined all those other countries and announced it was temporarily suspending most parcels to the U.S.

Derek says a lot of this comes down to IT systems and training.

Each post office around the world, whether that's Australia or Germany or UK, just does not have the systems in place to collect all the right information.

It's been quite a mess, and we asked Customs and Border Protection whether it could have done anything more to avoid this.

A CBP spokesperson said the agency is coordinating with carriers and trade partners to minimize disruption while securing revenue, strengthening border integrity, and delivering long-term benefits to our national and economic security.

And that brings us to the question of who exactly does benefit or lose out from the end of De Minimus.

Clearly, Jess Venden and her customers lose out, and anyone trying to buy from Etsy stores overseas or Timu or Xi'an.

A couple of economists tried to quantify exactly how much money households saved by buying things online through de minimis shippers, like those online stores.

Pablo Fachelbaum at UCLA is one of them.

He says he found a strong connection between buying de minimis goods and how wealthy your neighborhood is.

Those that spend the most as a share of total income are the poorest.

That means low-income zip codes will lose out on more, relatively speaking, from the end of De Minimis.

For the poorest zip codes, in the order of $40

per person per year, what we get.

So it's not going to break the bank on its own.

No, we don't think it's going to break the bank.

I mean, it would be unfair to say this is going to break the bank.

There will also be winners from De Minimus ending.

Derek Lossing says that increase in prices will be good for American retailers.

Small business owners are, and large business owners are winners, right?

So there's a lot of small businesses on Main Street America.

They can't compete with the prices that people are buying things from Timu historically, right?

If you walk into your local hardware store and buy a tape measure, right?

That went through U.S.

customs.

There was a duty, a tariff paid on that tape measure before it came in.

A U.S.

fulfillment job sent it to the store.

A U.S.

retailer put it on the shelf at the store, right?

There's Americans that kind of work behind that.

In the past, that difference in price would have been fairly small.

But as American tariffs have shot up over the last decade, the sense that physical stores were playing on an uneven playing field just became too untenable for lawmakers.

As for Jess, she hopes to welcome American customers back one day.

I really hope there is a resolution that means that everybody can keep trading with each other because the world just seems to be getting more insular and it's a real shame.

For now though, there is an opportunity for American jewelry makers.

This episode was produced by Angel Creras with Engineering by Kwesi Lee.

It was fact-checked by Sarah Juarez and Kupikats McKim and edited by Patty Hirsch.

Keikon Kennedy edits the show and the indicators of production of NPR.

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