U.S. Scraps Small Parcels Tariff Exemption, Costing Small Businesses, Adding $10B to Treasury

TradingKey - The U.S. policy eliminating tariff exemptions for small packages — expanding from China to a global scope — officially took effect on August 29. Industry insiders warn that this change in the de minimis rule is severely disrupting small business supply chains, limiting consumer choice and degrading the shopping experience, while the Trump administration emerges as a rare beneficiary.

For years, goods shipped to the U.S. in packages valued under $800 entered duty-free. In 2024, approximately 1.4 billion such small parcels — worth over $64 billion — were sent to the U.S., accounting for 92% of all inbound freight shipments.

However, on July 30, President Donald Trump issued an executive order to fully revoke the de minimis exemption for all small packages entering the U.S. from August 29, expanding a policy that had already been terminated for shipments from mainland China and Hong Kong in May.

The U.S. government justified the move by claiming the exemption was being “abused” to evade tariffs and smuggle synthetic opioids and other dangerous goods, calling it a “loophole.”

According to U.S. Customs and Border Protection (CBP), 98% of narcotics seized last year came through small parcels, as did 97% of counterfeit goods and 70% of health-risk products.

The New York Times reported that the new policy has already prompted many foreign postal services to pause shipments to the U.S. Logistics firm Flexport said the change is forcing a significant shift in long-standing business practices.

The Universal Postal Union (UPU), a United Nations agency, said that 25 member countries’ postal operators have decided to suspend mail delivery to the U.S. due to uncertainty over transit services. Given the tight implementation timeline, this poses a major challenge to the international postal network, especially for cross-border e-commerce deliveries.

The Federation of Small Businesses (FSB) in the UK warned that the policy will raise costs and create new barriers for small British firms trying to compete with large brands. A UK wool supplier said,

“I knew it was going to be an absolute chaotic mess.”

The UK was the fourth-largest exporter of small parcels to the U.S. last year, behind China, Canada, and Mexico.

For American consumers, the new rule means fewer product choices in stores and on e-commerce platforms. Small businesses must now navigate complex export compliance, leading to longer delivery times for U.S. shoppers.

Additionally, trade experts note that small businesses may feel intense pressure from costly customs audits, making it difficult to maintain stable pricing. This could, in turn, add upward pressure on U.S. inflation.

White House trade advisor Peter Navarro said the Trump administration has closed a “deadly loophole” with the de minimis threshold and expects the move to generate $10 billion in annual tariff revenue for the Treasury.

According to the U.S. Treasury, U.S. customs tariff revenue surged 273% year-over-year in July to $28 billion, a record high. Treasury Secretary Scott Bessent projects $300 billion in tariff revenue for fiscal year 2025, with even higher collections expected in 2026.