The U.S. government dealt another blow to Chinese e-commerce platforms and the air cargo market with Tuesday’s declaration that tariffs on imports from China will be jacked up an additional 50%, jeopardizing demand for their ultra-low-cost merchandise less than a week after duty-free customs privileges were revoked.
As part of his escalating trade war with China, President Donald Trump also imposed more draconian fees on low-value shipments from the country that move through the international postal system.
Trump’s trade actions are “going to decimate airfreight out of China because Temu and Shein’s volumes are going to get hammered” when the rules go into effect on May 2, said Derek Lossing, a former logistics executive at Amazon and founder of e-commerce supply chain consultancy Cirrus Global Advisors, in a phone interview. “Demand is going to dry up. It’s gonna be brutal.”
Trump last Wednesday ended the so-called de minimis exemption and gave notice that postal parcels will face a duty rate of either 30% of their value or $25 per item, increasing to $50 per item on June 1. The stated reason was that the frictionless entry enjoyed by parcels made it easy for criminals to smuggle illicit fentanyl and counterfeit goods into the country. By forcing small-dollar shipments through a formal entry process, the administration says authorities can apply analytics to identify suspicious parcels for inspection.
On Tuesday, Trump hiked the duty rate to 90% and the flat fee to $75. The flat fee slated for June 1 was revised to $150 from $50, according to the executive order.Shippers can choose the percentage rate or the fee route and can change their choice once a month.
Although the amount of the fees is shocking, online marketplaces mostly shun postal services because of slow delivery times. They will be mostly affected by being subject to the new tariff regime, according to logistics experts.
Currently, goods valued at $800 or less and shipped to individuals are exempt from duty payments and detailed documentation for customs clearance. The favorable rules enticed online retailers like Temu, Shein and Alibaba in recent years to fulfill orders from the factory and send them directly to consumer residences instead of shipping in bulk to U.S. warehouses. Many U.S. brands, including Amazon’s new Haul bargain store, have also adopted direct-to-consumer fulfillment from China.
Starting Wednesday, tariffs on Chinese goods will rise an additional 50%, to 104%, as Trump said would happen if China didn’t back down on its own retaliatory tariffs. The new tariff rate stacks on top of 20% and 34% tariffs announced by the administration in recent weeks.Some products subject to tariffs initiated in 2018 could see even higher tariffs, such as medical devices at 225%.
A crackdown on business-to-consumer e-commerce shipments from China has been building for more than a year because of concerns about smuggling and an uneven playing field for domestic retailers selling goods subject to import duty or made in the United States, where costs are higher. On its way out in January, the Biden administration proposed stricter rules on low-value Chinese parcels. De minimis reforms have also gained support on Capitol Hill. But the Trump administration went further and faster, eliminating duty-free treatment for de minimis shipments and using emergency authority to stem the tide of illegal drugs without waiting to complete the normal rulemaking process.
Demand destruction
When it became clear last fall the Biden administration was preparing to change some de minimis rules, consensus in the logistics industry was that the impact on Temu and Shein would be limited because adding $3 or $4 to the price of a super cheap dress wouldn’t deter most shoppers. But the elimination of the de minimis exemption, combined with a massive spike in tariffs, could severely change the business equation for the Chinese players, depending how long Trump sticks with the new trade rules.
The new U.S. tariffs on China mean Americans won’t find the same bargains they are used to at Temu, Shein, Alibaba and other sites. In addition to paying high duties, each parcel will cost $3 to clear customs compared to 10 cents under a special expedited de minimis process currently used by retailers. A dress that cost $30 before will more than double in price under the new rules if all extra costs are passed to customers.
“As soon as Temu and Amazon have price parity, Temu is not going to be as popular,” Lossing told FreightWaves. “Every time you stack on more costs, demand is going to fall. And then you also start slowing down the supply chain because things are going to get caught up in customs searches and airports are going to become congested.”
The vast majority of de minimis shipments move through air logistics channels. Digital markets in China were the primary engine behind double-digit air cargo growth last year, accounting for nearly two-thirds of volumes on the trans-Pacific lane, according to market researchers.
The air cargo sector was already bracing for a significant decrease in business after the White House made clear in February that de minimis would be banned from duty-free privileges, but Tuesday’s order is likely to destroy much more demand for cross-border e-commerce, experts predict. Airlines are likely to lose volume too as large e-tailers return to a B2B2C model that involves shipping by ocean and fulfilling orders from U.S. facilities. Chinese marketplaces, especially Temu, also have the ability to source more from other countries, but pending U.S. plans to update de minimis rules for the rest of the world could undermine the tactic.
Businesses and economists express hope that the massive tariffs on China – as well as many other countries – are simply a negotiating tactic and that Trump will quickly reduce them. If that happens, the impact on e-commerce and air cargo could be less severe.
Amazon recently began listing more brand name apparel on its Haul storefront, The Information reported on Wednesday. When Amazon launched Haul late last year, the storefront only offered unbranded products from outside sellers that shipped to U.S. shoppers from China with delivery times of more than a week. Apparel bought in bulk from brands like Levis ships from within the U.S. with shorter delivery times than the other goods on Haul. In addition, Amazon earlier this month added a browser-based version of Haul, which had previously only been available on its mobile app. The moves are likely to increase Haul’s appeal as a destination for bargains as barriers to Chinese imports increase, the tech news site said.
China has significant postal volumes to the U.S., according to U.S. Customs and Border Protection and e-commerce experts, but they are dwarfed by shipments moved through commercial air and express transport. Mainstream e-commerce brands don’t use postal services to any significant degree because they take nearly three weeks for delivery compared to about a week using logistics providers. The primary post users are small sellers and individuals.
Some trade compliance experts last week speculated that online retailers might shift some volume to China Post and the U.S. Postal Service because the flat fees offered some cost certainty for higher-value orders, but the new Trump fees likely wiped away that option considering that the average de minimis shipment is worth about $50.
Click here for more FreightWaves/American Shipper articles by Eric Kulisch.
Write to Eric Kulisch at ekulisch@freightwaves.com.
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