the US, allowing packages valued under $800 to enter the country duty-free. Enabled by the e-commerce explosion and accelerated by Covid-era consumption, this loophole helped supercharge the rise of ultra-fast fashion giants. In fiscal 2024 alone, more than 1.36 billion such shipments entered the US, more than double the volume just four years earlier. Roughly 60 per cent came from China. As of May 2, that free ride ends. Packages worth less than $800 from China and Hong Kong will now face a 90 per cent duty or a $75 minimum charge starting May 2, tripling the initial rate of 30 per cent or $25 announced just weeks earlier. That minimum will climb to $150 by June 1. Just last year, these same packages entered the US market entirely duty-free. Loophole capitalism By leveraging the de minimis threshold, Chinese companies like Shein and Temu have avoided costly import duties. They bypassed traditional supply chains, shipping individual parcels directly to consumers and often avoiding scrutiny from the US Customs and Border Protection (CBP). CBP estimates that between FY18 and FY21, over two-thirds of de minimis imports, worth $228.3 billion, originated from China and Hong Kong.  “The discontinuation of the de minimis exemption basically creates an even playground for e-commerce companies,” said Yao Jin, an associate professor of supply chain management at Miami University of Ohio.  “Temu and Shein have long taken advantage of this loophole that was never intended for e-commerce to allow Chinese suppliers to sell directly to American consumers. If you do a picture search, you’d often be able to find the same items sold on platforms like Amazon under nondescript brands, usually at higher prices.”  Now, with their cost advantage eroding, Shein and Temu are scrambling to adapt. Temu is doubling down on its US infrastructure, onboarding local sellers and opening warehouses to cut shipping times and avoid the newly imposed fees. But the fallout could be devastating for small Chinese manufacturers, many of whom rely on cross-border e-commerce orders to survive. “All e-commerce business models among these retailers are converging. Prices are starting to equalise as well, as ‘local shipping’ serves as Temu’s de facto ‘Amazonification’ in the domestic US retail supply chain,” Jin added.  Shifting markets Facing tightening conditions in the US, Temu has been eyeing new growth frontiers in Southeast Asia. But that pivot is proving far from straightforward. Unlike the US, where regulatory backlash came late, Southeast Asian governments appear to be acting early to limit Temu’s footprint.  Indonesia, the region’s largest consumer market, remains largely off-limits due to strict cross-border trade rules that ban direct shipments of products worth under $100 from China, effectively excluding Temu’s entire low-cost catalogue. Elsewhere in the region, the welcome has been tepid. Regulators in Vietnam, Thailand and Malaysia have raised red flags about the platform’s impact on local micro, small and medium-sized enterprises (MSMEs), which struggle to compete with heavily subsidised prices from Chinese mega-retailers. Winners, losers and landfills Not everyone is mourning the loophole’s demise. Resale platform ThredUp heralded the closure as a “critical step” towards environmental accountability. “For years, the de minimis loophole has provided an unfair advantage to fast fashion retailers, enabling them to flood the market with low-cost, short-lived items while circumventing import duties,” ThredUp said in a recent announcement.  “ThredUp has been a leading voice on this issue as the de minimis loophole has contributed significantly to the textile waste crisis, where millions of tons of clothing end up in landfills annually.”  According to the company, without meaningful disincentives, the system had little reason to change. Now, at least, there’s a financial mechanism pushing brands to rethink scale-at-any-cost strategies. A system reset Industry experts expect the closure of the de minimis loophole to be a structural reset for global e-commerce, one that exposes just how much of the modern retail economy was built on legal gray zones and regulatory blind spots. For Chinese ultra-fast fashion companies, they can no longer race ahead on the fuel of tariff-free logistics. For American consumers, the change means longer shipping times and higher prices.  Further reading: The end of US de minimis to shake up e-commerce industry.