Context:

The recent closure of a tariff loophole by President Trump is expected to significantly reduce the volume of low-value shipments from China to the U.S., impacting companies like UPS, FedEx, and DHL, which have relied heavily on this business. This change could lead to a 25% decline in revenue for UPS from its China-to-U.S. trade lane and result in 20,000 job cuts as part of cost-reduction strategies. The loophole, known as the de minimis exemption, previously allowed goods worth $800 or less to enter the U.S. without tariffs, but its removal will now impose tariffs of up to 145% on these items. While some logistics companies may struggle to compensate for these losses elsewhere, others, like Temu, have already shifted their operations to handle U.S. sales through local sellers. Additionally, air cargo traffic between China and the U.S. is expected to decrease significantly, prompting Chinese businesses to explore other markets such as Europe and Latin America to maintain their sales volumes.

Dive Deeper:

• The closure of the de minimis exemption, which allowed goods valued at $800 or less from China to enter the U.S. tariff-free, has disrupted major logistics companies like UPS, FedEx, and DHL, who previously handled millions of low-value shipments daily.

• UPS has projected a 25% revenue decline from its most profitable trade lane, the China-to-U.S. route, leading to a plan to cut 20,000 jobs, highlighting the severe impact of the exemption's closure on its operations.

• With the abolition of the loophole, American consumers will face tariffs as high as 145% on Chinese goods, significantly increasing the cost of products like a $10 T-shirt, which would now cost $24.50.

• As a response to the changing trade dynamics, companies like Temu have adjusted their business models to have U.S. sales fulfilled by local sellers rather than shipping directly from China.

• The reduction in low-value shipments is expected to cause a substantial decline in air cargo traffic from China to the U.S., with experts predicting a 30-40% drop in market capacity, affecting cargo airlines heavily involved in this trade.

• Despite the negative impact on U.S. logistics companies, some Chinese businesses are attempting to pivot by increasing sales in other regions such as Europe, Australia, New Zealand, and Latin America, where there are already signs of increased shipments.

• While the Trump administration issued a waiver allowing lenient treatment for lower-value goods, some experts argue this undermines tariff collection, though customs lawyers maintain that detailed information is still required.