US de minimis is over: UK retailers start paying up

That is because the “de minimis” loophole, which meant that goods worth under $800 (£594) were not subject to import duties, will be closed by the Trump government. 

This means that many retailers that had previously avoided the new additional tariffs for exporting into the US because of their low product prices now face the considerable additional costs involved in trading with the country. 

How will it work on UK products?

The first thing to look at is the country-specific tariffs that the US government set out earlier this month. The good news for the UK is that it is one of the countries with a baseline 10% rate – the lowest in the world. 

But just heaping 10% onto the price would be far too simple. 

The country specific tariffs will (with one big exception) be on top of the duty rates specific to the product, which as anybody having dealt with customs forms knows can be pretty complicated to figure out. 

This example is totally illustrative, but let’s take a knitted scarf manufactured and shipped from the UK using Scottish cashmere, for example, that costs £80 ($107.70) before shipping. 

Previously, for products that were shipped from the UK direct to a consumer, the additional costs would have only included the paperwork involved and shipping fees because of the threshold. 

Now, the additional costs will include the 10% UK tariff (£8/$10.77) plus an additional rate of £7.68/$10.34 paid on knitted scarves of “wool or fine animal hair” (although identifying the exact code can be a challenge). For reference, cashmere scarves that are woven, rather than knitted, would attract a different additional rate.

Then there are also some additional costs that some shipments previously avoided, such as merchant processing fees (MPF), either $2.10 or $6 depending on how it is processed. Also, shipments that arrive by sea may now have to pay a harbour maintenance fee (HMF) set at 0.125% of the item value. 

On top of that, it is more than likely that delivery companies will start applying hiked handling fees for products that are suddenly subject to customs and as a result, require more admin on their end. 

The big exclusion I hinted at earlier was products sent through the international postal network, which will only have to apply the country-specific tarrifs. Royal Mail say they are going to charge a 50p handling fee per item. 

For the next six months, retailers could also opt to pay a flat fee of between $80 and $200 depending on the country of origin to avoid the tariff charges. This will save some of the admin temporarily, but, in the example outlined above, would cost close to $50 more.

There is also the option with some shipping companies to pass responsibility for the payment of duties onto the US buyer, but this will come with additional risks.

Companies also now have to consider all the additional internal paperwork involved in products that are subject to customs duties. This will have a cost burden too. 

My products are not made in the UK – what then?

This is where it gets even more expensive. In reality, many UK companies manufacture their products in countries like Bangladesh (tariff rate 20%) China (30%) and India (50%!).

Let’s take a knitted cashmere scarf with the fabric sourced and the product made in India, but sold from the UK by a UK retailer for £80. According to the new rules, that scarf will face the 50% tariff (£40).

This is all before the MPF, HMF (if applicable) and all the additional costs laid out above. 

Retailers need to be careful here and be very sure of their product origins. There may be some production in the UK, but if it is not judged to have been substantially transformed enough in the UK then the rate will be set based on the country the materials were imported from. 

For example, a t-shirt made in China but where the graphic is applied in the UK will be deemed to have originated in China because, among other reasons, the trade product code it is classified under will not have changed (it will still be a t-shirt). 

How will this impact retailers?

The initial closing of the de minimis loophole was targeted at goods from China and Hong Kong. As a result, the focus of a lot of coverage has very much been on how Chinese goods would be impacted. 

However, as you can see from the example above, this will catch any retailer shipping directly from their home base to customers in the US that have previously relied on the de minimis loophole.

Coach owner Tapestry recently flagged that one-third of the $160m (£119m) tariff and duty impacts it was expecting this year were as a result of the de minimis rule change. 

Earlier this month, Retail Economics and ESW estimated that tariffs were set to cost UK non-food retailers £618.5m. The de minimis changes were not disaggregated from the total here. 

What does this mean for shipping arrangements?

At the current time, your options for shipping anything to the US from Europe have become a lot more limited. Royal Mail was among the dozens of European operators to say they were suspending some of their US delivery services earlier this week to allow enough time for parcels currently in transit to arrive before the de minimis threshold comes into force. 

Those watching the industry back in 2021 will remember similar scenes as shipping providers came to terms with the new paperwork requirements post-Brexit. 

Questions have also been asked about whether the US Postal Service will be able to handle the additional administrative volumes involved. There were 1.4 billion low-cost shipments imported into the US last year, according to US Customs and Border Protection. That is a lot of additional paperwork. 

This is a wait and see situation as things stand, but you can definitely expect additional costs to apply and things to become a bit slower in the near-term.