I’ve seen the declarations on my social media accounts:
“We’re no longer shipping to the U.S.”
Small merchants and artists found themselves in the crosshairs of a much larger war they didn’t understand… and they’ll feel the most pain.
On August 29, the de minimis exemption was laid to rest.
And a lot of people took it personally.
The once-obscure tax exemption was suddenly tossed into the mainstream spotlight. It fractured across emotional and political divides, triggering frustration and panic.
But how did we get here?
Who is going to feel the most pain?
And in the end, are there any winners that will walk away with gains?
Going Postal
To understand what’s taking place we must confront the ghosts of Tariff Acts past.
You see, under the Tariff Act of 1930, practically every product – no matter how big or small – that entered the U.S. was subject to duties and customs.
The problem with this was…
It was incredibly annoying.
Before the dawn of the “Digital Age” – those days of paper, pencil and pen many of us remember - regulators found the whole ordeal to be a massive and expensive headache. On smaller items, the rule created too many logjams and inconveniences for far too little revenue.
It simply wasn’t worth it to enforce.
But in a moment of clarity, in 1938 Congress implemented the “De Minimis” rule. It provided an exemption for items “too trivial” to bother with. So, gifts of $5 or less and $1 items in other situations entered the U.S. duty-free.
It was a godsend.
And meant less paper and man hours were wasted trying to hunt down literal nickels and dimes.
As the years passed, de minimis values steadily increased.
By 1994, under the Customs Modernization Act, the de minimis threshold was raised to $200. And in 2019 – to foster international trade and boost economic activity – it was increased to $800.
An Obama-era plan that the slow machinations of government took years to implement.
It seemed like a fine idea at the time. A way to allow eBay (EBAY), Etsy (ETSY), Shopify (SHOP), and other online marketplace merchants to get their goods into the hands of spend thrift American consumers.
And guess what… it worked? (with a very prominent asterisk)
All of a sudden, de minimis shipments entering into the U.S. exploded from 134 million in 2015 to 1.36 billion in 2024.
It was a free-for-all as the number of these packages essentially doubled every year for a decade.
And U.S. customs agents found themselves processing more than 4 million de minimis packages... EVERY. SINGLE. DAY.
Unfortunately, it wasn’t small Etsy shops and eBay resellers reaping the most rewards. In fact, a single country was to blame…
Bargain Basement Flood
China is responsible for more than 70% of the de minimis packages that enter the U.S.
And two companies – Shein and Temu (owned by PDD (PDD)) – are responsible for more than 30% of all de minimis packages shipped to the U.S. each day. They are also the point of origin for half of all de minimis shipments from China to the U.S.
Here’s the deal… before Shein and Temu entered the fray, no one even talked about the de minimis exemption.
No one cared.
But once these two companies started eating into the market share of their competitors, it emerged as a hotbed issue.
At first other retailers decried it as an unfair advantage.
And then quickly shut their mouths because they realized they could just do the same.
In fact, Tapestry (TPR) – the parent of iconic luxury brands Coach and Kate Spade – tapped the de minimis exemption extensively.
We’re talking as much as 14% of its annual sales into the U.S. fell under the exemption.
Lululemon (LULU) – the yoga pants monolith - heavily relies on exploiting de minimis. It now faces a potential $0.90 to $1.10 headwind per share with its elimination.
And shares today are trading at new 52-week lows as it lowered full-year guidance. U.S. tariffs alone are projected to wipe out $240 million in profits from the Canadian athleisure brands.
We’re seeing these same erosions at Dollar Tree (DLTR). And why I find Dollar General (DG) unattractive.
Meanwhile, be very wary of eBay, Etsy, and Shopify. All marketplaces where merchants relied on de minimis exemptions are going to feel the pinch as well. And they could potentially be the hardest hit of all… especially if you read the meltdowns on the merchant community boards.
That “Made in America” label just got a lot more lucrative.
And Amazon (AMZN), Target (TGT) and Walmart (WMT) – with their massive networks of warehouses across the United States – are poised to swallow up market share at a rapid pace.
Plus, their prices already display the impact of tariffs, allowing them to be more competitive against smaller merchants.
Here’s the real contrarian takeaway… don’t count out China.
Despite every merchant screaming the end of de minimis happened “overnight,” the announcement was made in May. And Shein and Temu began raising prices months ago.
But with the cost of shipping from other countries increasing – and the cost of shipping direct from China so low – no one won an advantage. That means PDD and other Chinese retailers are still in a position to win.
The de minimis exemption had become such a problem in recent years that even former President Joe Biden sought it’s end. And it was already slated to wind down in July 2027.
So, despite the commotion and full-throated outrage over an exemption most people didn’t know existed a few months ago, Trump merely speeded up what was already in place.
And it brings an end to a loophole massive international retailers weren’t meant to rely on in the first place. Especially luxury and upscale brands such Coach, Kate Spade and Lululemon.
Unfortunately, small businesses looking to gain a toehold in the U.S. got the short end of the stick. So, show your favorites some love if you can because they weren’t to blame.
Ditching discount and de minimis downtrodden,
Matthew