Rule meant to do one thing becomes a loophole helping air cargo to evade duties
 What was meant as a tax break for individual gift givers, became a loophole for the Chinese "fast fashion" firms to air freight their wares to the US duty free.
The situation, and its remedy, renews the recent focus on customs and excise and pits two heroic figures against each other - Abraham Lincoln, a champion of tariffs, and Scottish economist Adam Smith, who advocated free trade.
Lately, the "de minimis" exemption is under fire. This allowed single individuals to ship items duty free into the US if valued at US$800 or less and delivered to an individual recipient's address.
As a loophole, this suited e-commerce retailers just fine. Fast fashion dealers like Shein, Temu, AliExpress, Amazon and Shopify were delighted. They could display their products online as "fast fashion" and air freight them as discrete packages to individual addressees.
In the process, e-tailers rescued the air cargo sector from a recession and pushed it to 12 per cent growth last year. As the e-commerce surge accelerated in the fall of 2023, air cargo rates from China to the United States climbed to more than US$6/kg and stayed in the $5-to-$7 range last year, before falling after the peak season. E-commerce now accounts for one-fifth of air freight volume and more than 50 per cent of air cargo out of Asia.
But then, the US announced, the "de minimis" exemption would be eliminated. Though blamed on the Trump administration, the Biden administration said such measures were coming.
Said Freightos research chief Judah Levine: “Closing de minimis to Chinese imports could sharply reduce air cargo volumes from China to the US, which would result in significant downward pressure on transpacific rates.
"It could also lead to lower rates across the air cargo market as capacity currently absorbed by transpacific e-commerce goods is released back into rotation,” he said.
Freightos, a bookings and payment platform, estimates that a total exit of e-commerce parcels from the air cargo mode could force down air cargo rates from China to the US by 30 per cent to about $3.65/kg from the current $5.09/kg.
US Customs and Border Protection says it processes more than four million de minimis shipments per day.
Said former United and Delta cargo executive Neel Jones Shah: “If that goes to two million or three million per day that will have a big impact on the amount of air freight capacity the Chinese are buying and could result in an over capacity situation.
"And that will have a negative impact on yields and everything else. Overall, this is not good news for the air freight industry. I just don’t know how bad the news is,” said Mr Shah.
There has been a shift in America - a popular shift - from free trade to protectionism. It might have gone the other way had free trade been free trade, but it was never so. That was the aim of the World Trade Organisation, but never really achieved. In trade, it is said, no one's hands are clean.
The imbalance started in 1945, with the generosity of the United States, anxious not to lose ground to aggressive Communism, first in Europe and then in Asia and Africa, enduring incremental but fundamental changes in its own economy.
American corporations found cheap, but competent labour in Asia, and moved production offshore. As this was happening in the 1960s, women started entering the work force. In 1950, the work force was 62 million strong. By 2000, its stood at 141 million and by 2024 it reached 168.4 million.
What Trump, Elon Musk say they want to reverse this trend by reducing expenses and re-deploying funds that have been wasted on financing transgender operas in Colombia, a US$21 million grant to boost voter participation in India, $2 million for sex changes and LGBT activism in Guatemala, funding for a “DEI musical” in Ireland and $2.5 million for electric vehicles for Vietnam.
And that is just from the USAID purge. There are some 400 agencies with secrets to reveal. Elon Musk assisted by reform minded cabinet level department heads will also do their own reconnaissance in force, rooting out slam dunk cases of corruption and malingerers. The rush is necessary because it all must be done and dusted before the November 2026 mid-term elections.
One of the tools to effect a re-industrialisation of America is the tariff. While Trump's strategic outcome is plain, his tactics only become evident in dribs and drabs.
In Napoleonic style, he opens with a barrage of announcements, and attention-getting feints, like the declaration that the was going to take over the Panama Canal, and rename the Gulf of Mexico. And of course, annexing Canada as the 51st state after announcing that he would impose a 25 per cent tariff on all goods from Canada and Mexico. Both countries reacted in reciprocal ways, vowing to do the same the same to US imports.
Of course, he had actually done nothing, but caused a reaction that showed him how they moved, indicating how he might get the best to deal at the bargaining table.
Now we return to China and its air freight problem, which can be thought of it in similar terms. The US imported more than 2.5 million tons of cargo by air from China last year, including about 1.3 million tons of cheap e-commerce products that are potentially impacted by the US decision to close the trade privilege. The rest is general cargo now subject to a new 10 per cent tariff on Chinese goods, according to data from the Dutch air cargo consultancy Rotate.
Electronic retailers, logistics service providers, express carriers, customs brokers and others are scrambling to understand the new rules and how to reorient work streams accordingly. Trade professionals say they are confused about how to adjust operations with only a vague announcement from the White House and few answers from US Customs. The situation is fluid and projected impacts could change depending on whether President Trump changes his mind - as he did when he gave Canada and Mexico a reprieve on 25 per cent tariffs.
It all serves to get trading partners to think turkey before talking turkey at the bargaining table. |
