President Trump on Wednesday ordered the closure of a loophole that allows retailers to directly send clothes and other goods from China to American shoppers without paying tariffs.
The loophole, known as the de minimis exemption, currently applies to goods worth less than $800. Such goods are allowed to enter the United States tariff free. Mr. Trump’s order, which takes effect on May 2, removes the exemption from packages from China, the largest source of de minimis shipments. Items bought and shipped this way also require far less customs paperwork.
By ending the exemption, Customs and Border Protection will now collect tariff revenue on shipments worth less than $800. Mr. Trump also said his order would help prevent drug smuggling. He and others have claimed that fentanyl and its precursor ingredients are sometimes shipped to the United States as de minimis shipments.
Shippers in China “hide illicit substances and conceal the true contents of shipments sent to the United States through deceptive shipping practices,” Mr. Trump’s order said.
Lawmakers from both parties have called for reform to the de minimis provision.
Representative Linda Sánchez, a Democrat of California who has introduced legislation to end the exemption, said Mr. Trump’s order did not go far enough and needed to apply to all trade. “Otherwise, we’ll be playing a game of Whac-a-Mole, as bad actors and fentanyl smugglers simply relocate their operations to other countries to continue exploiting the loophole,” she said in a statement.
“For too long, this customs loophole has let foreign exporters flood our market with cheap goods and helped drug traffickers move fentanyl past our borders — resulting in factory closures, job losses and deaths,” Representative Rosa DeLauro, a Democrat of Connecticut, said in a statement on Thursday.
The National Council of Textile Organizations, a trade group that represents U.S. manufacturers, welcomed Mr. Trump’s move. The group said in a statement that it is pushing for an end to the loophole for all imported goods, not just those sent from China and Hong Kong.
But Mr. Trump’s order will likely push up costs for American consumers, some trade experts said. Research has found that eliminating the provision entirely would cost Americans between $11 billion and $13 billion, and those higher costs would disproportionately hurt lower-income and minority households.
“This is going to be pretty unpopular with a lot of Americans,” Clark Packard, a research fellow at the Cato Institute, a research organization that generally favors free trade.
Mr. Packard questioned whether closing the loophole would help drug detection efforts, saying that customs officials already screen packages entering the country, including de minimis shipments.
“By flooding the customs process with more paperwork, it probably detracts from C.B.P.’s ability to try to ferret out illegal drugs traffic across borders,” Mr. Packard said.
Asked whether it was ready to process and check more packages, Hilton Beckham, assistant commissioner at the Customs and Border Protection said: “Our automated systems are fully updated to capture, assess and administer all new duties, and clear guidance will be provided to support uniform enforcement across the nation.”
Shein, the fast-fashion retailer that sends most of its products directly from China under the provision, has in recent years become very popular. The company relies on factories in China that can manufacture a wide range of items in small quantities, said Sheng Lu, an apparel business professor at the University of Delaware. “There’s no realistic alternative to make their products,” he said.
Shein and Temu, which also relies on Chinese vendors, have diversified by working with more American sellers and opening warehouses in the United States, which could limit the impact of Mr. Trump’s orders on them. The companies did not immediately respond to requests for comment.
“This is not going to kill them off by any means,” said Aaron Rubin, the chief executive of ShipHero, a warehouse management software firm. “This will just change the business model.”
Shares of PDD Holdings, which owns Temu, tumbled about 5 percent on Thursday.
But small and medium U.S. retailers that rely on the de minimis provision for Chinese goods are poised to be hit even harder, said Professor Lu. Having to cover the extra costs, he said, could threaten the survival of smaller businesses, if customers are unwilling to pay higher prices or deal with delivery delays.
Mr. Trump had ordered the end of the exemption in February, but reinstated it within a few days. Logistics experts said the short closure caused a pileup of packages at the borders — logjams that they said could happen again when the president’s new order goes into effect.
Mr. Trump said he had been notified that systems were in place to collect tariffs on de minimis packages. He said he had asked the commerce secretary, Howard Lutnick, to report on the order’s impact in 90 days.
