US slashes 'de minimis' tariff on small China parcels to as low as 30%

Highlights:

• Trump cuts duties on China low-value commercial shipments to 30%-experts
• Tariffs on China postal shipments cut to 54% or $100 per package
• US de minimis rule blamed for flood of cheap imports and smuggling

The US will cut the "de minimis" tariff for low-value shipments from China to as low as 30%, according to a White House executive order and industry experts, further de-escalating a potentially damaging trade war between the world's two largest economies.

The order published late on Monday offers some relief to big Chinese e-commerce players Shein and Temu and follows a weekend deal between Beijing and Washington to unwind for 90 days most of the tit-for-tat tariffs imposed on each other's goods since early April.

While their joint statement following talks in Geneva did not mention the de minimis duties, the order signed by President Donald Trump said levies for those direct-to-consumer postal shipments will be reduced to 54% from 120% for items valued at up to $800, starting on Wednesday. An alternative flat fee of $100 per postal package remains in effect, but a planned June 1 increase to $200 was cancelled.

There are different rules for packages handled by commercial delivery firms such as United Parcel Service, FedEx, and DHL which shipped millions of Shein and Temu packages before Trump ended duty-free status for Chinese shipments valued under $800.

The rate for those packages now defaults to the reduced US tariff rate of 30% from 145% for Chinese imports, two delivery experts told Reuters on condition of anonymity for fear of retribution.

The 30% rate reflects the Trump administration's decision to cut China's "reciprocal" duty rate to 10% from 145%, plus a separate 20% duty related to the US fentanyl crisis.

The White House and the US Trade Representative's office did not immediately respond to a request for clarification.

Trade Representative Jamieson Greer told CNBC on Tuesday that the 10% global duty rate would likely remain in place to help rebuild the US manufacturing base.

COLLECTION DIFFICULTIES

Commercial shippers generally collect duties from sellers in China prior to shipment, but the US Postal Service is not set up to handle tariff collections. Four sources told Reuters most Temu and Shein shipments are handled by commercial carriers.

Many consumer goods from China in the commercial channel will still be subject to much higher duties imposed under previous trade actions or sectoral national security investigations. For example, syringes and surgical gloves are subject to 100% duties under a US Section 301 trade action.

One of the delivery experts said, however, that if shipped by a postal carrier in quantities valued at less than $800, they may be able to arrive in the US for only a $100 fee, or an effective 12.5% rate.

In February, Trump ended the de minimis exemption and imposed different rules for packages handled by postal services or commercial delivery firms - blaming the exemption for enabling a flood of shipments from Chinese e-commerce firms and traffickers of fentanyl and other illicit goods.

The number of shipments entering the US through the tax-free channel exploded in recent years with more than 90% of all packages coming via de minimis. Of those, about 60% came from China, led by direct-to-consumer retailers such as Temu and Shein.

According to 2024 congressional testimony from a US Customs and Border Protection official, the average value of a de minimis shipment during fiscal year 2023 was just $54.

Chinese online retailers Shein - which is considering a London stock market listing - and PDD Holdings-owned Temu, as well as US rival Amazon did not immediately respond to requests for comment.

China exported $240 billion in direct-to-consumer goods benefiting from de minimis worldwide last year, accounting for 7% of its overseas sales and contributing 1.3% of gross domestic product, according to Nomura estimates.

Jianlong Hu, CEO of Brands Factory, a Chinese cross-border e-commerce consultancy, said a 54% tariff was still very high.

"Sellers are probably taking a wait-and-see approach but in general I think it's fair to say the boom times of small package delivery from China to the US, the Golden Age is already gone."

Shein is more exposed to de minimis changes due to its reliance on speed of getting thousands of new styles each week to consumers in the West by air than others such as Temu.

Shein might still be one player that would want to send by air freight some packages from China and pay the 54% tariff rather than import all by boat, said Hu.

"If people are buying clothes on Shein and are told the product will arrive one month later, who will buy that?"

LOOPHOLE

China's yuan jumped to a six-month high against the dollar on Tuesday, joining a global rally in riskier assets following the broader trade deal between Beijing and Washington.

Trump's global trade war, which shredded the playbooks that have governed international trade for decades, has shaken up financial markets and raised fears of a recession.

The US de minimis rule, which dates back to 1938, has been the target of growing criticism from both Democratic and Republican lawmakers as a loophole that allows Chinese products to skirt US tariffs and illegal drugs and fentanyl precursors to enter the US unscreened, as Reuters reporting has confirmed.