Future uncertain for London merchant as U.S. looks to close little-known trade loophole

Like many small business owners in Canada, Rick Ho is uncertain about the future.

The Londoner's company, Echo Sales, specializes in mailing confections to U.S. retailers like convenience stores and gas stations — confections that are everywhere in Canada, but hard to find stateside.

It's a business that's been largely possible thanks to a little-known trade loophole known as the de minimis customs exemption.

The exemption, first enacted in the late 1930s, waives standard customs procedures and tariffs on goods worth less than $800 shipped to individuals in the U.S. It's a loophole the U.S. is now looking to close.

"If they drop the de minimus exemption, my business will come to an end, because all the transactions are relatively small," Ho said.

"Even if they passed duty-free but were applied the same scrutiny as other transactions, meaning they had to have a proper customs clearance, the $75 to $150 in brokerage fees on a $300 to $500 order automatically makes it economically unviable."

On Wednesday, U.S. President Donald Trump signed an executive order impacting goods from China and Hong Kong starting May 2. He said he plans to remove the exemption for other nations once the government certifies it has the resources to inspect the influx of shipments.

Trump had signed an initial order ending the exemption for Chinese goods in February, but paused it after federal agencies were overwhelmed by a tidal wave of packages. The White House estimates more than four million packages enter the U.S. every day under de minimis.

For Ho, Trump's plans put him between a rock and a hard place. 

Ninety per cent of his volume is U.S. sales, mostly in packages under $800. Selling to Canadians is impractical as the products are already here, and high shipping costs put international markets out of reach. "Anything less than a 40-foot shipping container doesn't make sense," he said.

He's hopeful the U.S. will change course after seeing how much resources will likely be needed to collect tens of dollars on a $300 order.

The de minimis exemption allows people to bring in or ship up to $800 US worth of goods per recipient per day. It also includes goods purchased in Canada and driven across the border, though the U.S. has said there will be an exception on "products for personal use" in someone's luggage.

The head of the Canadian Federation of Independent Business says de minimis has been an advantage to many Canadian merchants, especially those whose business is built around selling to U.S. customers.

"Just the uncertainty around this has caused its own chilling effect on economic growth. Are these businesses still going to be able to exist in that fashion?" he said. 

Canadian companies shipping products stateside that come from China or Hong Kong could be hit hardest, facing customs duties, U.S. tariffs on products from China, and U.S. tariffs on all imports, wiping out any potential profit.

"For some, this will make their business no longer viable, and that is obviously a great, great worry," Kelly said. "It's understandable the U.S. wishes to review this, but we're sure hoping Canada can maintain preferred access on this as part of our trade agreement."

America's de minimis threshold is the highest in the world, and increased from $200 in 2016. Canada's threshold varies — $150 for customs duties, $40 for taxes on courier shipments from the U.S. and Mexico, and $20 for goods from other countries. 

The high U.S. threshold has been well-used by e-commerce firms, including China-based AliExpress, Shein and Temu, which have rapidly expanded in the U.S. In 2023, more than one billion packages came through U.S. customs, compared to 134 million in 2015.

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Revising de minimis has seen bipartisan support, including from former President Joe Biden, citing the explosion in Chinese imports and concerns of exploitation to move contraband, said Preetika Joshi, an assistant professor at McGill University's Desautels Faculty of Management.

"I really don't think we can blame them for relooking and removing this exemption," she said amid those concerns, comparing their de minimis threshold to other countries. 

She notes many unanswered questions remain about it all could play out, and what would be impacted, for example, if a Canadian merchant sold necklaces to U.S. customers using beads imported from China.

"We don't really know what the world order is going to be like ... months from now. But there is opportunity in all of this. An opportunity to strengthen our country, our economy, our trade policies," she said.