President Donald Trump’s 10% duty increase on China came into effect on 4th February, and with it the termination of de minimis trade for countries subject to his latest tariff order (Canada, Mexico, and China). While much attention was drawn to how the temporary resolution reached with Canada and Mexico, it is the elimination of the de minimis exemption that stands to be the most economically significant portion of Trump’s trade plan. This article seeks to explore how the closing of this loophole will affect logistics, especially in the ASEAN markets.
NOTE: President Trump has paused his administration’s repeal of duty-free treatment of low-cost packages from China on Friday, Feb 7 2025, giving the Commerce Department time to make the order workable, after the rapid change created disruptions for customs inspectors, postal and delivery services and online retailers.
What is De Minimis?
Under the de minimis rule, an importer can generally import one or more shipments of merchandise into the U.S. each day, without filing a formal entry or paying taxes or duties for importations valued below a specific threshold. In most instances, the shipper also avoids having to file a formal entry with U.S. Customs and Border Protection (CBP) for customs clearance. Generally, de minimis shipments only require the presentation of a bill of lading or manifest.
The U.S. has the most generous threshold, at $800. In comparison, the threshold level across the European Union is 150 Euros, or about $155 USD. This can be attributed to the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), which then-President Obama signed into law on February 24, 2016, quadrupling it from $200 to its current level.
Benefits of De Minimis
The main benefit offered by de minimis revolves around the reduction of cost for importers. For SMBs, this is evident in the following:
- Monetary
- The waiver of import tax for de minimis shipments allows companies to reduce operational costs, enabling them to pass on the savings in the form of lower retail prices.
- Efficiency
- Shippers are not mandated to submit entry data through CBP’s Automated Commercial Environment system when importing under the de minimis exception. This greatly shortens and simplifies the customs clearance process, allowing for faster deliveries.
The nearly century-old de minimis allowed companies like Shein and Temu to bypass taxes on low-value shipments, sustaining and enabling their express delivery and rock-bottom pricing strategy. This helped propel their explosive growth in the American market.
Impact
It should therefore come as no surprise that closing the tariff loophole (not just reducing it down to pre-Obama levels) will send shockwaves in global trade logistics. The impact is mainly exemplified in the following:
Chinese Companies
Beijing is defiant that President Trump’s protectionist tariffs will hurt America more than China. However, this contradicts new estimates by economists at Nomura Holdings, which indicate that the ban will hit tens of billions of US dollars of trade and reduce China’s economic growth this year. With no more exemptions to exploit, companies will have to explore alternative avenues for import if they are to sustain their low-price and express delivery business model.
Temu, for example, has significantly ramped up its promotion of sellers who have inventory in U.S. warehousing, rather than items that are shipped direct from China. Other companies, however, may need to look towards cheaper shipping methods like sea freight.
Air Freight
Companies that do not ship from China or to the U.S. can also be affected by President Trump’s closing of the de minimis loophole. This is because a significant portion of Chinese de minimis shipments are facilitated through air freight, tying up precious capacity and driving up costs. Nomura analysts estimate that the volume of de minimis shipments to the U.S. could plummet by 60%. This would free up air freight space and capacity, leading to downwards pressure on air freight rates.
Southeast Asia
But what does this have to do with Southeast Asia? In the realm of global trade, what happens over here, matters over there. For example, the expected drop in air cargo volume from Trump’s tariffs would cause a spike in available capacity. As carriers work to shift freighters back to other lanes, the rate decrease spreads along with it.
The Chinese companies and importers that are directly affected by the de minimis rule change may also adapt to the changing landscape through diversifying their supply chains and/or expanding into new markets, which can and will affect Southeast Asia.
Supply Chain Diversification
Chinese businessman Huang explained in a BBC article that “In the case of some Chinese firms, their customers have told them: ‘If you don’t move production overseas, I’ll cancel your orders’.” Huang also observed Chinese textile manufacturing companies setting up factories around him in Cambodia. Electronics giants like Samsung have also invested billions into Vietnam to manufacture their products (using material sourced from the neighboring China), causing the country to overtake Japan for the first time to be China’s third largest export destination.
Exploring New Frontiers
Southeast Asia geographical location, as well as relative political neutrality, has seen it rise in prominence as a safe harbor amidst rising tensions between the U.S. and China. The latter has, unlike Canada and Mexico, opted to announce tit-for-tat retaliation measures before conducting negotiation talks (instead of after), indicating that the situation may become more volatile. Therefore, analysts predict that Chinese companies may look to target the domestic markets of Southeast Asian countries instead, a view shared by Thailand’s former deputy Prime Minister Surakiart Sathirathai.
This may, in turn, increase the importance of Singapore as a facilitator of logistics in and out of ASEAN. Singapore’s strategic advantages are rooted in its geographic position along the East-West trade route and its proximity to densely populated markets like China and India. It serves as a crucial hub for shipping and commercial management. The island state continues to be the leading maritime city in the world unaffected by the global conflicts and the rising environmental changes of the industry, retaining its spot as a world-leading maritime hub.
Managing the impact
Whether you’ve been shipping de minimis or not, here are some steps SMBs can take to navigate any upcoming changes:
Freight Forwarding
The governments of the Southeast Asian countries, like Malaysia and Indonesia, are all in the midst of evaluating the impact of President Trump’s tariffs on their respective economies. Some are even weighing whether to follow his lead and enact similar policies to prevent Chinese goods from being dumped into their local markets. As the situation unfolds, freight forwarders’ natural ability to adapt to rapidly changing rules and regulations has become more crucial to ensure the smooth delivery of goods.
Review HS Codes and Product Descriptions
A key component of smooth delivery is ensuring the accuracy of HS codes and product descriptions, especially for cargo that may have multiple classifications. Companies can consider regularly consulting with expert freight forwarders (like Express Freight Management) to ensure that the HS code used maximizes savings.
Diversify Shipping Strategies
Balancing the need to manage costs and ensuring speedy deliveries is a difficult task, for they may sometimes be mutually exclusive. Therefore, companies should look into diversifying shipping strategies across all stages of their supply chain, so that they can better react to sudden changes and optimize cost.
Conclusion
As the de minimis loophole closes, businesses will need to adapt to a new set of challenges and opportunities in global logistics. While the impact on shipping and air freight rates may offer some relief, the changes will likely spur companies to rethink their supply chains and shipping strategies. Southeast Asia, with its strategic location and growing role in international trade, will be key to helping businesses navigate these shifts. In this dynamic environment, staying agile and informed will be crucial for companies to remain competitive and resilient in the face of evolving global trade policies.
Whether you’re looking to diversify your shipping strategies or ensure compliance with evolving regulations, the right freight forwarding solutions can offer you the flexibility and expertise needed to stay competitive. By leveraging services that align with your unique needs, you can maintain cost-effective operations and timely deliveries, ensuring that your business thrives in an increasingly uncertain global market.
Streamline your logistics with Express Freight Management – your trusted partner for seamless global shipping solutions. As a leading international freight forwarder based in the United States, we have successfully managed trades between the United States and Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam for nearly two decades. With expert knowledge, advanced technology, and a commitment to reliability, we provide seamless logistics management that helps you focus on what matters most—growing your business.