Reflection – Why U.S. removal of the de minimis makes sense

Now American customers have to pay customs and duties on all orders from abroad, also those below $800, as the de minimis exception has been removed. A big change for many US citizens who were used to the favourable rules, and also for many shoe companies in especially Europe and Asia who sell a lot to America. However, the termination of de minimis actually makes a lot of sense. But it’s messed up by other things.

Background with new tariffs and removed de minimis

It’s turbulent times for the global trade in general and for customers in the USA in particular. This spring the Trump administration introduced new tariffs on more or less all imported goods, from 10% up to 100% plus depending on which origin country and product type. These were then postponed a couple of times, and in many cases they’ve been lowered a bit from the initial numbers, but from August more or less all imports are now imposed with tariffs (this page is good to keep track of the tariff situation, both which are in place and which have been threatened to come).

On top of this, we have the changes to the de minimis rule. The previous de minimis tax exception was implemented by Barack Obama’s administration in 2016, and meant that all imports for private consumers valued below $800 would have no tax or duties added. This was removed for China and Hong Kong in spring, and now from August 29 it’s removed completely. So all imports for regular people bought for example from an online store in Europe or China, will have potential tax, duties and tariffs added.

What was the problem with de minimis?

Now, I’m fully aware that for U.S. customers it’s been awesome to be able to buy stuff from abroad and have no fees added if the order was below $800. Especially if they ordered from Europe or other places where they first could have the high VAT (Value Added Tax, which is between 18-27% in EU countries for example) removed, since VAT is only paid by domestic citizens as standard. Of course also a lot of companies have benefitted from this, not least ones in Europe or Asia, who’ve had big exports to customers in the USA.

Given this favourable situation for imports for private consumers, it meant a tougher situation for U.S. retailers and brands to sell domestically, who had to pay duties on stuff they imported while private persons didn’t. That was one of the main problems with the de minimis.

The bigger one was that it created a twisted competition, since the high de minimis tax exception was more or less unique. 800 USD was the highest level in the world, followed by Australia with 650 USD (1,000 AUD) and El Salvador with a 300 USD de minimis level.

An example of how unfair the old de miminis rule could hit

The past years, when I’ve compared how it’s been for an American customer to order European made shoes from an e commerce store here in Sweden, to how it’s been for me living in Sweden to import a U.S. made shoe from America to here, the difference is crazy.

If we take shoes costing 500 USD domestically on both markets as an example. When Americans bought a pair of shoes from Sweden, they first deduct the Swedish VAT (which is high, 25%, meaning deduction was 20%), and then they didn’t have to pay anything when it arrived in the country. The shoes ended up costing 400 USD in total (500-100).

For me, if I purchased a $500 pair of shoes from USA, nothing is deducted on purchase, and when imported to Sweden I would have to pay 25% VAT, plus duties which usually is 12% for leather shoes, plus a small administrative fee of something like $10. The shoes ended up costing me 695 USD in total (500+125+60+10). Me in Europe had to pay a whopping 74% more for a corresponding import than an American customer had (the de minimis level for most EU countries is €150, circa $170, but on all imports we have to pay VAT).

Not only that, when an American bought that European made shoe from Europe, they paid significantly less than a European buying that shoe does (20% less given VAT is removed). I don’t think anyone can look at that and think it’s a fair balance. Of course it has meant that a lot more American customers bought shoes online from Europe than the other way around, Europeans buying shoes online from the USA.

Why the removal of the U.S. de minimis exception makes sense

Given the uniquely high American de minimis level before, and that the current rules where all imports are imposed of duties etc is more standard than the old ones, the new situation do make the USA more levelled, looking at this part. The problem, as I see it, is the new tariffs. They are instead unbalanced in the other direction, where now imports to the U.S. is higher than the other way around in most cases.

If the USA would’ve just removed the de minimis exception, it would mean a change for Americans, but not a huge one. It would also be positive in many regards for U.S. brands and companies who bought from abroad (not only finished products, but also materials, which most American shoe manufacturers do), given that the competition with favourable imports from abroad would be more limited.

For shoes, the regular U.S. import duties for leather shoes is between 5-12% normally, in my previous article on the tariffs I used 8% as an example, and to have that added plus a small administrative fee wouldn’t be that bad for American customers shopping from abroad. Again with EU as an example, if they bought from here it would still be well below what a European would pay domestically.

But now with the tariffs added on top of existing duties, it’s a big increase in costs compared to before (even if again, with the EU, the total sum is more or less similar to what we Europeans pay). Especially if bought from countries with high tariffs, it’s a crazy difference from before. Not good for the American customers, and not for the international companies (even if I know Trump doesn’t care about that. But I do).

Conclusion

Apart from the actual issues the new changes incur, the uncertainty caused is probably worse. Just the fact that a lot of shipping companies don’t even ship to the U.S. for the time being, since they don’t know how the removal of de minimis will work, and they say they don’t get enough info. The American customs system is also known for it’s high administrative burden, for all involved, so now when every package are to go through this things will likely be slow. Things will hopefully clear out with time, but risk is both consumers and companies have taken hits by then.

Personally, I’m all for global free trade, or at least free trade agreements between areas / countries with similar economies. I think it’s what’s most beneficial for most people. Given that we’re not at that type of situation, it’s at least better if there’s a balance between trade measures. The removal of the high de minimis level in the U.S. is a step in balancing things out. Problem is it’s done in conjunction with new tariffs added on top of previous duties, which is a step in the other direction.