The Impending Death of De Minimis: Supply Chains Navigate Cross-Border Shakeup

Recently, the ease of getting goods from Canadian or Mexican distribution centers via the de minimis importation loophole—avoiding paying duty on shipments of $800 or under—has become a risky proposition.

Initially, de minimis was going to be radically reduced, but this has been delayed while U.S. Customs and Border Protection (CBP) figures out how to handle the increase in volume and the collection of small duty amounts. 

Companies began leveraging different cross-border solutions with the growth of ecommerce—its explosion during Covid, and the original Trump tariffs from his first term—in fact, the fluctuation of duty in general across various product categories.

In the case of de minimis, the announcement of a crackdown on small-scale imported goods actually began toward the end of Biden’s term, in September 2024, in response to “the significant increased abuse of the de minimis exemption by China-founded ecommerce platforms.”

While I have decades of experience in cross-border movement of goods, navigating tariffs, and de minimis in particular, my area of retail specialty is apparel supply chains. So, this article will focus on how the changes in the de minimis exclusion are affecting apparel brands and retailers, and how they are thinking about various import solutions, such as nearshoring, in response.

Cross-border solutions like de minimis were enabling companies to avoid paying any duty at all into the United States, as any goods that came into the country under de minimis were not subject to customs inspection. Asian exporters often did this by landing first in Mexico and Canada, which had more favorable trade terms with the United States.

These neighboring countries also had more tolerance for what is called duty drawback or duty avoidance—namely, in the case of bringing something into Canada that then leaves Canada, it became easier to either not pay duty at all or get it back very quickly. 

What this led to was a plethora of distribution centers opening up in Mexico and Canada that acted as way stations between China and other Asian countries and the United States.

Because there was a sufficient volume of goods, companies were able to directly move parcels from Mexico or Canada into the U.S. parcel network. This meant that there was no loss of speed—packages could go directly from the Toronto area into Detroit or other nearby hubs in the United States overnight, as if they were being shipped domestically. 

Closing Loopholes

The Biden administration began closing some of the loopholes relating to imports from China on items that were subject to duty, under the premise of trying to ensure that packages are subject to customs inspection, particularly as related to illegal importation of fentanyl.

Within days of Trump assuming office, CBP announced further “aggressive action… to improve tools and automation, while strengthening enforcement of textile and apparel trade laws. Under the proposed new rule, merchandise subject to specific trade and national security actions would no longer qualify for the de minimis exemption.”

The impact of this new battle of the current tariff war can hardly be overstated. While there are many moving parts and differing opinions on what is going to transpire, retailers invested in de minimis are highly stressed. The ground is shifting, and investments that were being made or planned to take advantage of the de minimis exemption are suddenly no longer viable.

Distribution businesses founded exclusively on de minimis have opened millions of square feet of warehousing in Mexico to support cross-border movements. These economics are now being closely questioned—what applied a few weeks ago no longer applies. While the savings in duty allowed for better margins, the cost could be very high if this “loophole” gets closed.

The Impact on Ecommerce Cross-border Shipping

So what is going to happen? If de minimis truly goes away, ecommerce cross-border shipping becomes extremely expensive. Duty into the United States is valued on the retail price, not the wholesale price or factory cost of an item—importers must pay duty on the value that triggers the importation event into the United States.

So let’s say duty on an apparel item is 16%.

The factory cost of that item is $10, but the full retail price of the item could be $90—so the importer would have to begin paying 16%  duty on $90, or $14.40, rather than the $1.60 they were planning on. That’s more than it cost to make the item, and suddenly it becomes a losing proposition.

Absent a radical shift in the American consumer’s appetite for inexpensive imported goods, this situation leaves retailers and manufacturers between a rock and a hard place.

What about nearshoring?

The raw materials and small parts for manufacturing are still mainly available in Asia. For example, much of the infrastructure for creating all the trim components that go into manufacturing apparel are still in Asia or have shifted there.

By moving operations to domestic soil, the assembly cost becomes more expensive because the labor cost is higher; additionally, all of these trims now have to be moved logistically to an assembly plant in the Western Hemisphere, with further costs associated.

Ultimately there are the final logistics issues of getting goods into the United States. Costa Rica comes into the United States via the ocean, which is risky due to swings in ocean freight and port operations. And companies don’t want to truck highly valuable freight for the entire distance in Mexico because there’s a substantial risk of loss in the supply chain there. 

While there are potential advantages of nearshoring, they’re slim. Labor in Asia is still cheaper than labor in the Western Hemisphere, and few have been able to unlock Africa.

Nonetheless, companies are considering these alternatives, mainly because of the extreme volatility of ocean freight costing. This, added to the constant battle of possible port strikes and shutdowns on the East Coast and the West Coast, makes retailers question whether they can actually avoid any of these issues by being closer to the United States.

Two or three years ago, it appeared that the de minimis program was here to stay. It was hard to foresee how the United States could eliminate it through a calculated dismantling. In apparel, low-cost Chinese fast fashion companies set a new paradigm, based on the notion that consumers didn’t care how fast it got there anymore—it didn’t have to be two-day Amazon, it was just disposable clothing. And they showed how cheaply it’s possible to manufacture product. By entering under de minimis, they were not being subject to the inspection laws of the United States, which were developed to track human rights and environmental considerations in the apparel supply chain. Ironically, now the United States is working to end de minimis. 

These days, cross-border solutions in the current fast-changing tariff environment are definitely what’s keeping apparel company executives up at night.