Buried deep within the Trump Liberation Day announcement was the ending of a global loophole that has created an entire industry, generating income for potentially millions of persons engaging in merchandise arbitrage “side-hustles”.
Modern day social media platforms dangle a captivating allure; the prospect of easy money for those who seek to create and monetize their personal brand. People build a profile, gather a following and then, like any other huckster, sell them stuff for a profit. If that stuff is a physical product, it invariably comes from China, where manufacturers affix a “personal brand” logo onto any variety of mass produced items. These items are remarketed/sold on a personal website, through niche marketplaces such as Etsy, or via platforms such as Pinterest, Tik-Tok, Instagram or the like.
Every unscripted star on Bravo Network (Real Housewives) has created a brand to sell their fashions, their jewelry, their pet supplies, their makeup, their diapers, their whatever, on a website.
Most merchandise is sourced from China and is, in many cases, directly drop shipped from Shanghai/Shenzen, eliminating the need for a physical location by that “personal brand”.
Integrated merchandising fulfilment platforms, including Shopify, gladly provide an almost one-stop sales and back-office network for those seeking to monetize their brand through the sale of physical merchandise, all for a very steep middleman fee, of course.
The catch to all of this; most of the success of a personal brand/personal retailing merchandising industry is built upon and depends upon, a single loophole, duty free “de minimis” shipping.
In the United States, personal mail order items with a value of $799 US or less may enter the country free of duty, a clause known as de minimis. This permits a wide swathe of merchants, ranging from social media influencers, individuals, small retailers with just a website store-front, even up to well known companies such as Wayfair, to offer merchandise that is shipped duty free from China to any US address, provided that the net value of that box of stuff is below $800 US. Everyone takes advantage of the de minimis loophole when they order personal items from AliExpress, from Temu, from Shein, or for that matter, when they order almost any unrestricted item, from anywhere international, with a value below $800 (USA) or 150 EU (European Union).
US and European sales avoiding duty, utilizing the de minimis clause, have skyrocketed in recent years, to a potentially staggering sum.
According to US Customs and European Customs shipping data, a total of 5.96 BILLION packages crossed into the US and the EU in 2024. The exact split was 1.36 billion packages to the United States and 4.6 billion to Europe. Every package has a differing value, but in a maximum value case, the net amount of merchandise mailed into these jurisdictions, without duty, could have theoretically been as high as $1.85 TRILLION USD. That represents the gross, landed, potential value from China and abroad. Had the entirety of these merchandise shipments been marked up and resold at, say, double their landing cost, the potential maximum total sum involved would be $3.7 trillion USD, more than 2X the entire GDP of a medium sized G10 nation such as Canada.
Removing $1.85-$3.7 trillion, annually, of retail sales from the US and the EU represents a MONSTROUS hit against domestic tax remittance normally applicable on customs duties, on state and local sales taxes.
Moreover, the de minimis clause has accelerated the death of storefront retail in both the United States and the EU.
Why buy fabric from a local shop, clothing from a local store, lithium batteries for power tools at the local hardware store, heck, even agricultural implements and machinery, when you can have it drop shipped from China, duty free, provided that the value falls below $800? If one wanted to assemble an entire motor vehicle, duty free, it could be done, providing that one buys said vehicle in component form (with each component or part costing less than $800), spreads the order over multiple shipments and then pays an assembler in the United States to put the vehicle together.
With de minimis, taken to an extreme, for those who exploit tax loopholes, the sky is the limit. A systemic purchaser of duty free items from China could import, theoretically, all for “personal consumption”, goods totaling $291,635 US in a single year, without as much as $1 USD of duty being assessed upon the aggregate orders. Were these goods then resold, on a personal or social media website, or in person at trade shows, seminars, fairs, etc., for 2X-3X the Chinese drop-ship purchase price, the numbers now move up as much as $875,000 of retail merchandise value annually. A family of 5, all acting to coordinate purchases for resale…..more than $1.4 million US annually in personal purchases could be drop shipped to varying locations and then resold.
What was designed as a convenience, for an irregular purchase, or gift to/from a relative, has become a catastrophic event in terms of tax avoidance;
ruined, of course, by those seeking to game the system, for profit. This gaming is actively encouraged and facilitated by the variety of social media engines, acting in concert with website fulfilment and online payment providers, who encourage de minimis be used for side-hustlers. Everyone is a social media star, everyone has a side hustle, everybody sells merch. “If you don’t sell “merch”, why not? We have everything you need to set up a profitable business from the privacy of your own home“….is the marketing hook.
In the week of the US “Liberation Day” global tariff announcement, the end of the de minimis loophole, specifically targeting China, was quietly closed, with a May 2nd changeover date by the United States.
Any shipment hitting the US border from China under $800 will then be subject to a 30% duty, or $25 per item. Over and above that value will be the requisite processing and handling charges, customs paperwork fees assessed by the shipper to ensure compliance with the US government.
De minimis also ends for personal shipments landing from other countries, preventing the potential for a redirection, by purchasers from China, solely to avoid duties. Canada, for example, was the 3rd largest global de minimis shipper to the United States in 2024, engaging, as it always does, as the proxy workaround. When one country, with a population of about 40 million persons, lacking a meaningful finished goods domestic manufacturing industry in its own right, comes out of left field to represent the third largest personal de minimis shipper into the United States, rest assured that this is far more than birthday presents from an in-law, or an occasional sale of a scarce hand-crafted item; these are massive retail redirections/reshipments.
https://www.cbp.gov/newsroom/national-media-release/cbp-proposes-new-rule-strengthen-enforcement-and-limit-duty
The stock market plunge following the American global tariff declarations was felt hardest by those businesses and sectors most heavily exposed to tariff changes.
30%+ share price declines in many online shopping providers, against the backdrop of general market index pullbacks, might be perceived as being overdone by retail investors, who always profess themselves to be bargain hunters and who consider simplistic forward extrapolation of trailing revenues and profits to represent actual research.
However, hasty bargain hunters have likely have failed to sort through the deleterious outcome that will ensue from the abrupt closure of the world’s largest duty free loophole of all, how it will impact revenues and profits for those businesses who make their living, up and down the cost chain, on duty free arbitrage merchandising.
Direct personal merchandise purveyors will suffer. Who will pay a $25 US duty upcharge + a $20 customs declaration fee to purchase a $20 item, previously shipped without duty or paperwork fees from China? If one is a direct consumer, a massive price increase on low value merchandise reduces international purchases down to just an absolute necessity, rather than the impulse wish list. If one is a home-based retailer, one would have to markup that item at triple the landed cost price and still not break even. “Side hustlers” operating off of social media sites or using home based websites to resell Chinese merchandise will almost certainly see their business revenue dry up, or will see profit shrink to the point that the hustle is no longer feasible.
The closure of de minimis will reverberate throughout the online business world. Companies selling domain names for websites and maintenance fees for the same will suffer, as the total value of active domains will plateau or shrink. Payment processors serving as the backbone for the multitude of personal and small brand merchandise websites will suffer, as fewer people will engage in small value international purchases, given the new fee schedules involved. Fewer small personal websites will choose to sell ship internationally, given the additional and costly suite of paperwork involved. The only growth sector will be a customs broker, who will face an onslaught of forms for processing, perhaps temporary, until those still trying to game the system ultimately give up.
In total, the US government could, theoretically, have raised as much as $326 billion annually in duties on the closure of de mimimis, had all orders been close to that $800 per order amount. Of course it will not be anywhere near that sum due to the fact that there is a great number of small purchases. However, the dollar values were growing at a frightening pace, given the unsubtle efforts by social media, fulfilment and payment processors to market the retail side-hustle. Perhaps the duty revenues that were foregone were $20 billion, $50 billion, maybe even $100 billion.
Whatever the amount of duty foregone, it was significant, not a rounding error, and side hustlers, using a loophole, accelerated the destruction of many brick and mortar retailers.
These physical retailers employed staff, paid income taxes themselves, paid rent or leases on fixed premises, paid utility bills and local taxation where they were located and purchased equipment to operate their locations. When they ordered items from abroad, as commercial ventures, normal rates of duty were paid on shipments. All of this economy was destroyed through de minimis gone rogue.
Given the revenues, the multiplier effect and scale of tax avoidance involved, the damage to many online facilitators of de minimis shipments, up and down the food chain, could be material when it ends.
I suspect that few investors have yet to model the end of the loophole. Those who have above average equity exposure, be it through goods sales, through shippers, through online payment processors, based upon international mail-order retail of any sort into the United States, may be in for a very, very, unpleasant surprise.
As most of the personal retailers spend their largely tax free earnings in the real economy, there will be some back-up into other sectors. Does the side-hustler have a mortgage that will go underwater, once a fast growing revenue source suddenly dies? How much debt or personal leverage does the average side hustler maintain, supported by income from their home based website/retail merchandise venture? Will they be current on debts should that revenue source dry up? Have they been extended secured/unsecured lines of credit to pay for said merchandise? Which fintech firms or conventional banks are potentially on the hook as a result?
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