Analysis of the Background and Impact of the U.S. Suspension of the Exemption Policy for Chinese Small Packages

$BTC ### Analysis of the Background and Impact of the U.S. Suspension of the Exemption Policy for Chinese Small Packages

#### I. Timeline and Core Content of Policy Changes

1. **The Process of Policy Reversals**

- On February 1, President Trump signed an executive order announcing a 10% tariff on Chinese goods and eliminating the 'de minimis' tax exemption policy (i.e., packages valued below $800 are exempt from tariffs).

- After the policy took effect on February 4, U.S. Customs faced a backlog due to the need to formally declare and tax hundreds of thousands of packages, significantly reducing clearance efficiency.

- On February 7, Trump signed a new order to **suspend the removal of the tax exemption policy**, allowing Chinese small packages to continue entering the U.S. tax-free until the Department of Commerce establishes a 'sufficient system' to handle tariff collection.

2. **Direct Reasons for Policy Adjustments**

- **Customs Enforcement Pressure**: Hundreds of thousands of small packages are shipped daily from China to the U.S., with packages expected to exceed 1.36 billion through the 'de minimis' exemption in 2024. After the sudden policy change, the customs system faces the risk of paralysis due to a lack of supporting processes and manpower.

- **Logistics Chaos**: The United States Postal Service (USPS) temporarily suspended the acceptance of Chinese packages but withdrew the decision within 24 hours, highlighting the confusion in policy execution and logistics coordination.

#### II. Impact on Cross-Border E-commerce and Supply Chains

1. **Challenges to the Business Model of Chinese E-commerce Platforms**

- **Platforms like Temu and Shein**: These businesses rely on a 'direct mail model' to ship products directly from Chinese factories to U.S. consumers and maintain a price advantage through tax exemption policies. If the exemption is removed, their product costs may increase by 25%-30%, requiring adjustments to pricing or supply chain strategies.

- **Platform Response Measures**: Some companies have begun to establish overseas warehouses (e.g., Shein setting up distribution centers in the U.S.) or are turning to general trade customs clearance to reduce tariff impacts.

2. **Seller Differentiation and Market Structure Changes**

- **Low-price Competition Platforms Affected**: Platforms like Temu that focus on extremely low-priced goods may see their profit margins squeezed, even facing losses.

- **Brands and Quality Sellers Benefit**: Policies may suppress low-price competition, favoring sellers that focus on quality and brand.

#### III. Chain Effects on U.S. Consumers and the Economy

1. **Cost Pass-Through and Inflationary Pressures**

- Analysis indicates that if the tax exemption policy is ultimately canceled, the tariff costs may be borne by consumers, leading to rising prices for everyday goods, further exacerbating inflationary pressures in the U.S.

- According to surveys, 70% of U.S. consumers have shopped on Temu or Shein, and their reliance on low prices means that policy changes directly affect people's livelihoods.

2. **Long-term Policy Uncertainty**

- The Trump administration's 'frequent changes' reflect the instability of trade policies, requiring businesses to cope with frequently adjusted customs processes and cost assessments, which may weaken the willingness to invest in cross-border e-commerce.

#### IV. Future Trends and Responses from Various Parties

1. **Next Steps for the U.S. Government**

- The Department of Commerce needs to establish a more efficient tariff collection system, but the industry questions its feasibility, as the costs of processing billions of small packages may exceed tax revenues.

- Trump also maintains the long-term policy of imposing a 10% tariff on all Chinese goods, indicating that his hardline stance on trade with China remains unchanged.

2. **Adjustments by Chinese Sellers and Platforms**

- **Supply Chain Diversification**: Some sellers plan to shift production to Southeast Asia or Mexico or to stockpile goods in overseas warehouses to mitigate tariff risks.

- **Policy Lobbying and Cooperation**: Industry organizations call for U.S.-China coordination on customs clearance procedures to avoid logistics paralysis.

#### Summary

This policy reversal highlights the vulnerability of cross-border e-commerce in the global supply chain, as well as the U.S. attempt to balance trade protection and domestic consumption needs. In the short term, suspending the exemption policy allows both sides time to adjust, but rising long-term tariff costs will force companies to restructure, and consumers will need to adapt to price fluctuations. The future direction of policies will still depend on U.S. administrative efficiency and the outcomes of U.S.-China trade interactions.