De minimis: The rarely-examined trade clause about to become a very big deal

The thing about trade, and the economics of trade, is that it is simultaneously desperately boring and desperately important.

For example, consider a little bit of legal small print no one spent all that much time thinking about until recently – a clause in most countries’ customs arrangements known as “de minimis”.

The idea behind de minimis is quite simple.

Collecting customs can be an expensive business. You need to employ lots of people to check goods, police the system and collect the relevant customs and tariffs.

In theory, you could fund that via the customs you’re charging people to import goods into the country.

But what if the items you’re imposing tariffs and charges on are so cheap that it makes no economic sense to actually impose those charges?

Consider a £5 t-shirt of the kind you might order from an online retailer such as Shein. In theory, that garment should face a 20% tariff when it arrives from China into the UK.

But since 20% of a small number is an even smaller number, most customs authorities, including those in the UK, have taken the stance of essentially excluding any cheap imports from paying customs. This is the ‘de minimis’ rule.

There are similar rules in most countries, with the main difference being the threshold at which they kick in. Here in Britain, de minimis applies to anything worth less than £135. In the US the threshold at which you start paying customs charges is higher: $800.

Now, there’s a long and detailed set of discussions that have bored on for decades about the pros and cons of this scheme. The historic arguments against collecting those fees were that a) doing so probably cost more money than it would raise, b) scanning and checking every import would jam up ports and airports unnecessarily and c) it might have a bearing on the wider Economy as it throws further sand in the wheels of commerce.

But in recent years, a host of mostly Chinese retailers have exploited the de minimis rule to ship (actually, mostly to fly) cheap products to the US, UK, Europe and beyond.

‘Shein and Temu undercut other companies’

The most visible of these companies are Shein and Temu. By directly flying consignments of very cheap clothes and consumer goods to airports in the west, they have been able to undercut other companies without having to pay customs fees.

All of which is why, alongside the host of other tariffs imposed in recent weeks, Donald Trump is also doing something else – eliminating America’s de minimis rules altogether. At least, that’s the plan.

Having pledged to do so in February, the administration rapidly reversed the decision after consignments began to pile up at US airports.

However, the impending rule, which is due to kick in this Friday, sounds like it might be more concrete than the last one. And, if it’s actually imposed, tariffs of 145% will be imposed on goods that, once upon a time, didn’t face any tariffs at all. Which is a very big deal indeed.

The real question is what happens next.

The short answer, as with so much about the current US administration is: no one really knows, and if they say they do, don’t believe them.