2 mins on... Trump-Vance and Tariffs

If you're a brand importing goods into the USA, the upcoming election could have a big impact on your margins.

Trump has had a good week in the polls, and looks increasingly set to win November’s election to become the next President of the United States.

His announcement of J.D. Vance as running mate means that if they win, the next administration is going to be extremely tough on trade. With J.D. Vance resembling a trade-warrior, pushing Trump to go harder on strengthening American manufacture vs China, and enacting America First trade policies through tariffs.

In this post, I’m going to highlight a piece of legislation change that is more likely than ever before and could have huge implications for overseas brands importing into the US.

It’s called the de minimis threshold.

The threat to international brands

Threats of tariffs have been on the cards ever since the first Trump administration, and the trade-war rhetoric has been ramping up throughout the latest election campaign. The announcement of J.D. Vance is an inflection point though, where tariffs have moved from talk to inevitabilities (if they get in).

Whilst claims made during campaigns should be treated with a high degree of scepticism, these aren’t empty threats and they aren’t new. And the announcement of Vance is a serious statement of intent.

The following is from a recent Politico article:

Rather than try to moderate Trump’s trade policy instincts, Vance is likely to push Trump to go harder. Vance is “even more hawkish on trade than Trump has been – I think it’s very much a signal that tariffs are coming,” said Peter Harrell, former senior director for international economics in the Biden administration and currently a fellow at the Carnegie Endowment for International Peace.

Trump signalled as much in an interview with Bloomberg published Wednesday in which he touted the possibility of 50 percent tariffs on Chinese imports (though that is lower than the 60 percent tariffs he was reportedly considering earlier this year). “Tariffs do two things. Economically, they’re phenomenal … and man, is it good for negotiation,” Trump told Bloomberg.

The field of tariffs, duties, and legislation is vast and I’m not going to explore everything - but due to its relevance to New Luxury brands, I’m going to focus solely on the de minimis threshold.

The de minimis threshold

The de minimis threshold is the monetary value below which goods can enter the United States duty-free. Since 2015, the threshold has been set at $800, meaning any shipment valued at $800 or less could enter the US without incurring import duties and taxes.

The de minimus threshold directly impacts the cost of importing goods, so is a critical factor to any ecommerce business shipping into the US from outside the country.

What if Trump-Vance don’t win

This trend toward America First trade policies isn’t just a Republican thing.

The following is direct from a Biden-Harris Administration statement in May 2024:

As President Biden says, American workers and businesses can outcompete anyone—as long as they have fair competition. But for too long, China’s government has used unfair, non-market practices. China’s forced technology transfers and intellectual property theft have contributed to its control of 70, 80, and even 90 percent of global production for the critical inputs necessary for our technologies, infrastructure, energy, and health care—creating unacceptable risks to America’s supply chains and economic security. Furthermore, these same non-market policies and practices contribute to China’s growing overcapacity and export surges that threaten to significantly harm American workers, businesses, and communities.

The U.S. customs de minimis rule is already being reexamined by U.S. Congress due to concerns about its potentially negative impact on domestic industries and possibility for abuse.

There’s increasing pressure in Washington DC to lower the threshold from its current level of $800, with policy makers looking for ways to respond to competition/threats to domestic industries from competition in China, South America etc.

Isn’t this just a China problem?

Most of the focus (especially in rhetoric) has been around combatting China’s unfair trade policies, especially around IP infringement and domination of manufacturing in sectors like semiconductors, health care goods, etc.

Just this week, Biden’s administration described China’s trade practices as “predatory”. So there’s no escaping it, America has it’s eyes on China.

However, so much of the global supply chain is driven by China that the knock on impact of increased duties on goods arriving to the US from China will be huge (assuming changes will apply to a wider array of products).

Furthermore, whilst reforms are yet to be formalised, the likelihood is that the threshold will be lowered significantly - i.e. ~$200 - across the board, and exporters from certain countries (e.g. China) could be made ineligible.

This change has implications for both businesses and consumers, as it increases the cost of importing goods. For businesses, this could mean adjusting pricing strategies and considering new supply chain solutions. For consumers, it may lead to higher prices for imported goods.

So it’s a big thing for a lot of people.

What’s the implication

The reduction in the de minimis threshold will have a big impact on commerce, especially for brands shipping from outside to US customers.

Given the relatively high ticket prices of New Luxury brands, these changes are a real threat to profitability for UK, EU and other international brands with a sizeable US customer base.

To prepare, businesses need a plan. Waiting until the legislation changes will be too late.

How to stay across this

• Stay close to announcements and predictions regarding de minimus changes

• Model the commercial impact of doing nothing and taking the import duty hit, you need to understand what the material impact could be to your profitability

• Explore the setup of US warehousing and distribution, to reduce the level to which you’re importing goods

• Explore new supplier options in countries outside of China, given that China is in the cross hairs it’s likely that businesses will seek alternative supply partners thus mitigating higher duties and taxes when importing goods

• Explore the appropriate legal entity(ies) and compliance setup for your business in the event you open a US warehouse / 3PL

• Map out the right tech and integrations needed to make all the above possible

• Plan merchandising, planning and allocation of stock