Why Trump's repeal of a trade loophole will hurt low-income and minority Americans

By Helen Reid, Arriana McLymore and Lisa Baertlein

LONDON/NEW YORK/LOS ANGELES (Reuters) - Prices will rise for Americans who buy $5 shirts, $10 lamps and $20 shoes on direct-from-China shopping sites like Shein and Temu after U.S. President Donald Trump suddenly shut a trade loophole that had been used to ship low-value packages duty-free from China.

But the cancellation this week of the so-called de minimis loophole will strain American consumers unevenly, according to economists who analyzed data on millions of shipments to the U.S. from three global carriers.

Poor shoppers will be hurt disproportionately, they found, as people living in lower-income and minority U.S. zip codes spend relatively more on such shipments than those living in higher-income areas.

"Removing the de minimis exemption for Chinese imports is likely to raise their prices for consumers, particularly for lower-income consumers," said Amit Khandelwal, professor of global affairs and economics at Yale University, who co-authored the research paper with Pablo Fajgelbaum of UCLA.

Eliminating de minimis will cost U.S. consumers between $10.9 billion and $13 billion overall, but the relative cost per person will be higher for lower-income Americans, according to the paper, expected to be published in the Quarterly Journal of Economics, which called de minimis a "pro-poor" policy.

The pain will also be felt more by minority Americans, with a higher cost per person in dollar terms in zip codes with 5% white households than in areas that are 95% white, the economists found.

Analysts at Nomura estimated that prices of products previously sent under de minimis could rise by as much as 55% if the full cost of additional administrative fees and duties is passed on to consumers, causing a 55% drop in demand.

Regardless of income level, higher prices would turn off shoppers such as Porche Hughes, 39, who says she shops at Shein regularly because it's a lot cheaper than other stores for products such as rhinestones and nail polish.

She spends between $100 and $150 every quarter on art supplies from Shein, but that would come to a halt if the retailer raises its prices, the Raleigh, North Carolina resident said.

ABRUPT SHIFT

Ending the Section 321 de minimis provision has been on the cards for years, with some U.S. politicians across party lines arguing Chinese e-commerce giants have used it to undercut rivals and erode the U.S. retail industry.

Still, its elimination, as part of Trump's package of tariffs on China, came faster than expected, leaving postal services, logistics firms and online retailers scrambling.

It will likely hurt profitability for companies like online dollar-store Temu, part of China's PDD Holdings, and China-founded fast fashion retailer Shein, but will also impact Amazon Haul, a rival direct-from-China platform launched by Amazon in November.

Temu and Shein together account for 30% of de minimis shipments to the U.S., according to a 2023 congressional committee report. Both may have to increase their prices to offset the extra cost, industry experts said.

Temu launched in the U.S. in September 2022 and used social-media influencers to tout its merchandise as better value for money than traditional stores, using the slogan "Shop like a billionaire" to advertise its discount pricing.

Both Temu and Shein, which focuses more on clothes but also sells everything from toys to smartphones, attracted millions of Americans bruised by inflation who were already trading down to cheaper alternatives across food, clothing, and entertainment.

Hughes said that if Shein raises its prices, she'll probably turn to Amazon for her silicone molds, diamond painting kits and other craft items.

"If I'm going to pay higher prices, I at least need to get my items in a timely manner," Hughes said, referring to Amazon's speedier shipment.

Direct-from-China purchases typically take up to two weeks to arrive, with shoppers willing to accept the longer wait in exchange for bargain prices.

As well as the prospect of price hikes, shoppers face higher fees to receive goods that were already en route before the shift.

On Tuesday, Clint Reid got a message from delivery company DHL saying a Shein order of $197 worth of items for his employees' daughters would be returned to sender if he did not pay an extra $39.07.

That fee included $20.76 in import duties, $1.31 in regulatory charges and $17 in duty tax processing.

Reid is something of an expert in the subject. His St. George, Utah-based company Zonos specializes in calculating duties and taxes, including for outbound packages for the United States Postal Service.

"Americans are finally going to understand what I do for a living after they pay a $17 fee to DHL plus duty just to get an order from China," Reid said.

(This story has been corrected to clarify that Clint Reid's Shein order was for his employees' daughters, not his daughter, in paragraph 21)

(Reporting by Helen Reid in London, Arriana McLymore in New York and Lisa Baertlein in Los Angeles; Editing by Toby Chopra)