3 Ways Trump’s De Minimis rule will affect logistics and ASEAN
1st February saw US President Donald Trump’s additional 10% tariff and barring of the de minimis exemption for all Chinese imports. Noting how the abrupt change in status might overwhelm customs authorities and cause massive congestion and backlog, President Trump temporarily reinstated the exemption a few days later. As US Customs and Border Protection use the time to develop adequate systems to process the expected sudden spike in formal entry imports, we will explore the relevant impacts to global logistics, especially for the ASEAN market, in this article.
What is De Minimis?
Under the de minimis rule, an importer can generally import one or more shipments of merchandise into the U.S. each day, without filing a formal entry for customs clearance or paying taxes or duties for importations valued below a specific threshold. Generally speaking, de minimis shipments only require the submission of a Bill of Lading (BL or BoL) or manifest.
Most countries have de minimis regulation to facilitate trade. The threshold level across the European Union, for example, is 150 Euros. By contrast, the U.S. has the most generous threshold, at $800, after then-President Barack Obama quadrupled it from $200 in 2016 with the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA).
Benefits of De Minimis
For Small and Medium-Sized Businesses (SMB), the de minimis exemption helps immensely in eliminating the complicated and arduous customs clearance process. This results in:
- Faster Delivery: By reducing the time that the cargo is held up at the customs, customers can receive their goods within days instead of weeks.
- Cost Saving: Under the de minimis rule, shippers do not have to pay import taxes, but also avoid the associated customs clearance fees.
Chinese-owned companies like Temu and fast fashion giant Shein have massively benefitted from de minimis during their rampant growth in the American market.
Impact
President Trump’s decision to close this loophole, instead of just reverting it to pre-Obama levels, will no doubt send shockwaves in the global logistics scene. The impacts would largely revolve around:
1. Chinese Companies
The retrospective pause buys Chinese firms much needed time to shift away from their heavy reliance on de minimis and air cargo to export to the U.S. This could be through alternative shipping methods like door-to-door sea freight.
Temu, for example, has significantly ramped up its promotion of sellers who have inventory in U.S. warehousing, rather than items that are shipped direct from China.
2. Air Freight
The savings and speed that the de minimis exemption affords low-value imports is a key facilitator of the flood of parcels entering the US via this exception mostly by air freight. Per Reuters, President Trump’s ruling saw Shein and Temu halting some air cargo flights, invoking force majeure to cancel agreements without penalties. This indicates an incoming sharp drop in air cargo volume, freeing up much of the guzzled-up capacity. This could in turn, as analysts hope, push transpacific rates down significantly.
Further Reading: 8 Things You Should Know About Air Freight in Australia
3. Southeast Asia
You may be wondering, what does US-China trade tensions have to do with Southeast Asia? Well, it is a situation of “what happens over here, matters over there” in global trade. As significant air freight capacity is released back into the market, the downward pressure on air freight rates could be spread across other lanes as carriers shift freighters over. Likewise, Chinese companies may opt to diversify their supply chains and/or expand operations in new markets to react to this change.
Supply Chain Diversification
For some Chinese firms, their foreign customers have started indicating their withdrawal should production stay in China. The global trend of decoupling away from China has also seen electronics giants like Samsung investing billions into the neighbouring Vietnam to manufacture (using material sourced from China), causing the country to overtake Japan for the first time to become China’s third largest export destination in 2024.
Exploring New Markets
With companies scrambling for a safe harbour amidst rising tensions between the U.S. and China, Southeast Asia has become a star candidate thanks to its geographical location and relative political neutrality. Beijing’s announcing of tit-for-tat countermeasures indicates the improbability of a quick resolution. As such, Thailand’s former Prime Minister Surakiart Sathirathai has, like some analysts, predicted that Chinese companies may look to target the domestic markets of Southeast Asian countries instead.
Of the ASEAN nations, Singapore looks poised to capitalize on this shift as the facilitator of logistics in and out of the region. It has remained as the leading maritime city in the world, unaffected by the global conflicts and rising environmental changes of the industry. Its multicultural roots can also serve as a good testing bed for companies in preparation for entry into the neighbouring markets like Malaysia, Indonesia, Philippines, Brunei, etc. In short, Singapore’s geographical location, maritime advantages, and efficient logistics system allows businesses tapping on it to connect to the global market more efficiently.
Further Reading: How Australian Businesses Can Leverage Singapore for Global Trade Success
Managing the Impact
SMBs, whether reliant on de minimis shipping or not, can employ the following to adapt to the shifting conditions:
Freight Forwarding
The Malaysian and Indonesian government, among others, have reportedly been evaluating whether to follow in President Trump’s lead in enacting similar policies to prevent their countries from becoming the next dumping ground for cheap Chinese goods. As global trade remains persistently volatile, freight forwarders’ natural ability to adapt rapidly has become even more crucial.
Review HS Codes and Product Descriptions
For cargo that may have multiple classifications, accurate HS codes and product descriptions are key to ensuring its smooth logistics processing. Companies should consider working with freight forwarders (like Arc Freights) to conduct periodic reviews, so as to identify the correct HS codes, and possibly one that maximizes cost savings.
Diversifying Shipping Strategies
Air freight’s cost-prohibitive nature (particularly for small shipments) have been made more palatable with the de minimis exemption. What the latest rule change shows is that businesses have to remain agile and not rely on only one (or a few) shipping methods so as to better adapt to rapid changes. For example, shippers can consider splitting shipments across air and sea wherever possible to balance the need for cost control and delivery speed.
Conclusion
Businesses will need to adapt to the new set of challenges and opportunities brought about by the closing of the de minimis loophole to China. Southeast Asia, with its strategic location and growing role in international trade, should be the first port of call as businesses rethink their supply chains and shipping strategies. With help from freight forwarders, companies can stay agile and informed to remain competitive and resilient.
Arc Freights is Australia’s leading Freight Forwarder offering QUALITY & RELIABLE logistics services in more than 140 countries. Having plied our expertise in ASEAN for nearly two decades, we are the trusted partner for logistics between Australia and Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. With expert knowledge, advanced technology, and a commitment to reliability, we provide seamless logistics management that helps you focus on what matters most—growing your business.
