WASHINGTON, D.C. — Darya Kosilova, owner of a vintage clothing store called Cherish the Label, is feeling the impact of a recent policy change. Her Vancouver-based business, which specializes in 80s and 90s garments, has seen a significant drop in orders this year. Nearly 90 percent of her sales go to the United States, and she is worried that the situation will worsen.

As of August 29, President Donald Trump has ended the de minimis exemption, a 95-year-old trade policy that allowed low-value goods, valued under $800, to enter the U.S. without incurring duties. Kosilova expressed her concerns, stating, "I only have one of everything in stock, so it takes a lot of effort and push on my end to get this product out into the world, and I can only sell it once. So, if all of a sudden my market just disappears, it’s a big impact."

With nearly four million de minimis packages entering the U.S. daily, businesses and shippers are now scrambling to understand the new costs associated with shipping their products. The new duties will be based on the International Emergency Economic Powers Act (IEEPA) tariff rate or, for the next six months, a flat rate ranging from $80 to $200 per package. While many Canadian products can avoid these new duties under the Canada-United States-Mexico Agreement (CUSMA), this is contingent on meeting specific certification requirements that many small businesses have previously overlooked.

The de minimis exemption, which means "of trifling importance," was established to relieve the U.S. government from collecting duties on low-value imports. It began in 1938, allowing goods valued at up to $1 to enter duty-free. Over the years, the threshold increased, reaching $800 in 2016. By last year, 1.36 billion packages entered the U.S. under this exemption, with over half coming from China. The exemption has been criticized for enabling the shipment of counterfeit goods and illicit drugs, particularly fentanyl.

In May, Trump suspended the de minimis exemption for China and Hong Kong, and an executive order in late July accelerated the expiration of the exemption for the rest of the world, catching many businesses off guard. Canadian exporters, who have heavily relied on this exemption, are now facing uncertainty. According to Statistics Canada, over 85 percent of Canadian exporters ship to the U.S.

Larger Canadian businesses are accustomed to navigating customs and duties, but small and medium-sized enterprises are now exploring options for bulk shipping and leasing warehouse space in the U.S. Mark Becker, CEO of G10 Fulfilment, noted that small businesses must either increase prices for customers or stock goods in U.S. warehouses, both of which add operational costs.

Jesse Mitchell, a director at Strader-Ferris International, highlighted the challenges for businesses with products containing components from countries like China, Vietnam, or India. He explained that if a business ships a $200 shirt made in China for $10, the duty could exceed the production cost. "Those companies are going to be in big trouble," he said, emphasizing the need for many to downsize in Canada and establish U.S. warehouses.

Even businesses compliant with CUSMA are concerned. Lucie Quigley, president of Gutter Saver Pro in Nova Scotia, produces ladder gutter protectors in Canada but fears she may need to store products in the U.S. Despite having a certificate of origin under CUSMA, she is uncertain about the implications of the new duties. "I either have to pay for clearance on every shipment, and the pricing around that is not very transparent … or I have to look at finding a warehouse in the U.S.," she said.

The urgency for U.S. warehouse space is palpable, with many entrepreneurs given only weeks to adapt to the new regulations. Becker noted that he is quoting more Canadian businesses than ever but cannot provide immediate solutions. "I’m already starting to get into the busy season," he said. "By October, I can’t be moving new customers in. It would just be a recipe for disaster [before the holidays]."

The policy change has also led to shipping delays and uncertainty, prompting several countries, including France, Germany, and Japan, to suspend some shipments to the U.S. as they await clearer guidance. Clark Packard, a trade expert, predicts that the new policy will increase shipping costs and times, adversely affecting small and medium-sized businesses in both Canada and the U.S.

The crackdown on fentanyl trafficking is a significant factor behind the policy change. According to the Centers for Disease Control, approximately 48,422 Americans died from fentanyl overdoses last year. Brian Townsend, a retired DEA agent, noted that drug traffickers have exploited the de minimis loophole to send fentanyl and other illicit drugs into the U.S. Most trade experts agree that closing this loophole is necessary to combat drug trafficking.

While some shippers and U.S. authorities support the change, many businesses are left wondering how to navigate the new landscape. The future remains uncertain as companies adapt to the evolving trade policies.