THE END OF A DUTY-FREE NATION
Friday will be a bruising, in-real-life example of how mundane tax law can still affect the wispy world of high fashion.
At the end of this week, Friday the 29th, another Trump administration maneuver will take effect, significantly changing how e-commerce businesses trade and operate.
The US since 2016 has had a tax scheme called the de minimis rule—"de minimis," Latin, meaning small, trifling things. This meant that shipments under $800 worth of commercial value could enter the United States with limited documentation and no regulatory duties or customs fees applied.
This system has allowed foreign fashion e-commerce players like Montreal-based Ssense to send goods into the country cheaply and easily. But, for a company like Ssense, whose average order value (AOV) is around $400, a large segment of their outgoing parcels to the US will likely fall under this new rule.
Friday will be a bruising, in-real-life example of how mundane tax law can still affect the wispy world of high fashion.
The new rule:
- All commercial packages arriving into US customs will be given an automatic flat tariff of $80 - $200 (shipments from China and Hong Kong mostly)
or
- All commercial packages will now be assessed a duty of 10% - 50% rate for goods incoming from Canada, in Ssense's situation.
Though an offensive measure aimed at huge, international players like Shein and Temu, smaller e-commerce companies will be caught in the crossfire.
For example:
Item bought from Ssense: $200
Shipping (FedEx Standard, Montreal --> LA): $50
Duty 15%: $37.50
Total Cost For Customer = $287.50
The Trump administration explains this is about national security, in-line with the current war on fentanyl. But it's also to alleviate stress on Customs, a governmental agency. Since de minimis has been in place, the department has become overwhelmed, inundated with packages. One figure has "low value" shipments (meaning <$800 in declared value) entering the US in 2016 at 134 million. That number surged to 1.3 billion by 2024.
Some countries are temporarily suspending shipments to the US in order to iron out processes for this new customs reality: Germany, France, Austria, Denmark, the Netherlands, Spain. In the Oceanic territories: Australia, Singapore, and India.
(Some, like France, are still allowing packages declared as "gifts" containing any items marked as "No Commercial Value" to be shipped.)
For high fashion e-commerce players within the United States, whatever your thoughts on the Trump administration, this will be a win for them, as it means the pool of competition shallows, effecting change in consumer behavior by forcing them to look to US companies for whatever they need.
This also creates a challenge for these same companies to be better at product research and procurement to satisfy a newly "locked in" customer base.
How companies like Ssense will fare operating without a dedicated US warehouse, but count on their sizable US customer base is a terrifying question, with a most likely expensive answer.