The United States is set to eliminate its long-standing de minimis exemption, a provision that has allowed packages valued at $800 or less to enter the country duty-free, a change that will significantly impact small businesses relying on cross-border e-commerce. Effective August 29, 2025, this shift is expected to increase costs for businesses and consumers alike, while potentially altering supply chain strategies. This development is part of a broader U.S. trade enforcement initiative aimed at national security and economic fairness.
The De Minimis Exemption: A Gateway for Global E-commerce
The de minimis exemption, rooted in the Tariff Act of 1930, was designed to streamline customs processes by waiving duties and formal entry requirements for low-value shipments, thereby reducing administrative burdens for minor transactions. The threshold was significantly raised from $200 to $800 in 2016, a move that coincided with the explosive growth of e-commerce. This increase facilitated a surge in direct-to-consumer shipments, making it easier and more affordable for U.S. customers to purchase goods from international sellers. The volume of these shipments has ballooned, with over 1 billion de minimis parcels entering the U.S. in 2023 alone. For many small businesses, particularly those in countries like Canada, this exemption has been a critical enabler of their business models, allowing them to compete effectively in the vast U.S. market.
Reasons Behind the Policy Shift
The White House has articulated several key justifications for ending the de minimis rule. Primarily, the administration cites national security concerns, arguing that the exemption is exploited to smuggle illicit materials, such as fentanyl and other synthetic opioids, into the country, alongside counterfeit and unsafe products. The large volume of de minimis shipments, subject to less scrutiny, creates opportunities for bad actors. Economically, officials contend that the exemption has given foreign companies an unfair advantage over U.S. businesses that must pay duties on imports, while also representing billions in lost tariff revenue annually that could fund government priorities. The change also reflects a bipartisan call to address what critics viewed as a loophole in U.S. trade policy.
New Tariffs and Operational Challenges Emerge
Starting August 29, 2025, shipments valued at $800 or less entering the U.S. will no longer be exempt from duties and formal customs procedures. Non-postal shipments will face applicable tariffs based on their Harmonized Tariff Schedule (HTS) code and country of origin, typically calculated as an ad valorem (value-based) duty. Postal parcels will also be subject to duties, either through an ad valorem rate or a fixed fee ranging from $80 to $200 per item, depending on the country of origin’s tariff rate. This specific duty methodology will be available for six months, after which the ad valorem rate will be exclusively applied.
Small Businesses Brace for Impact
This policy change is poised to dramatically increase operational costs for numerous small businesses. For many, especially Canadian exporters who ship extensively to the U.S. market, the impact is immediate and significant. The Canadian Federation of Independent Business (CFIB) reports that up to one-third of Canadian small and medium-sized enterprises (SMEs) expect to be negatively affected by the loss of the de minimis exemption. Some businesses are estimating that duties could add up to 35% to the cost of goods shipped to the U.S., potentially doubling the price for a $40 item.
Businesses like Winnipeg-based Tag4MyPet, which makes custom pet tags, found that duties could add $80 to shipments of $20 items, making it unviable to absorb or pass on the cost to American customers. As a result, many are temporarily halting shipments to the U.S., which constitutes a significant portion of their clientele. Other businesses, such as Wool Warehouse from the UK, have also suspended shipping to the U.S. due to anticipated cost increases averaging 50%.
Adapting to a New Trade Landscape
In response to these impending changes, businesses are exploring various strategies. Some are considering shifting to bulk importing and utilizing domestic fulfillment centers within the U.S. to manage inventory closer to customers and avoid per-shipment customs burdens. Others are looking into partnering with logistics experts or third-party logistics (3PL) providers who can navigate the increased customs complexities and ensure compliance. The potential for higher prices for U.S. consumers is also a significant concern, as businesses weigh whether to absorb costs or pass them on, which could impact demand.
Furthermore, postal services internationally have begun suspending shipments to the U.S. due to a lack of clarity on new procedures and the administrative burden of compliance. This disruption highlights the cascading effects of the U.S. policy shift across global supply chains. As this news continues to develop, businesses are urged to reassess their cross-border strategies and prepare for a new era of international trade costs and compliance requirements. The end of this exemption marks a significant change in the trending landscape of global commerce, impacting how goods cross the border and creating new challenges and considerations for businesses worldwide.
