T86 Tax Exemption Officially Cancelled, Cross-Border E-commerce Enters a Painful Period
The Trump administration’s trade policies have long aimed to reshape global commerce, particularly the trade relationship between the United States and China. A key aspect of this has been the use of tariffs and the alteration of existing trade regulations.
This article examines the recent decision to officially cancel the T86 tax exemption, a policy that has significantly facilitated the growth of Chinese cross-border e-commerce into the US market, and the concurrent imposition of new tariffs. These changes are poised to send shockwaves through the industry, forcing businesses to adapt or face significant challenges.
The Trump administration has decided to officially cancel the “de minimis” policy for goods under $800 in May. At the same time, Trump announced a new round of tariff increases on trade partners, including China.
This series of changes will have a profound impact on cross-border e-commerce and B2B export trade, and a number of cross-border e-commerce companies will experience a wave of pain.
01 The Tax-Free Era for Cross-Border E-commerce May Be Coming to an End
According to news from the White House website, an executive order signed by Trump states that after the U.S. Secretary of Commerce notifies that “a sufficient system has been established to collect tariff revenue,” the exemption from the minimum threshold for relevant goods originating from mainland China and Hong Kong will be terminated starting from 12:01 AM Eastern Time on May 2, 2025.
For many years, in order to reduce costs, many cross-border e-commerce sellers often split a batch of goods into small packages and separate bills. They continuously entered the United States in a fragmented “ant moving house” mode to achieve “tariff exemption for goods valued below $800.” This strategy allowed them to bypass significant import duties, making their products more competitive in the US market. Many cross-border logistics companies cooperated well, processing goods under different consignees and choosing some similar addresses for delivery to achieve tax avoidance.
Now that Trump has cancelled this treatment, all mailed packages from China will no longer be eligible for the T86 simplified customs clearance model. Instead, they will need to enter customs through clearance models such as T11 and T01 and pay the full amount of tariffs. This shift will inevitably lead to increased costs and complexities for Chinese sellers.
Trump added an additional condition to this executive order, namely that the tariff exemption will be officially cancelled “after the U.S. Secretary of Commerce notifies that ‘a sufficient system has been established to collect tariff revenue.’” This is because he learned from past mistakes. In February of this year, Trump suddenly announced the cancellation of the “de minimis” tariff exemption but quickly reinstated it because customs was not prepared. The T86 simplified clearance process was used for small goods valued under $800.
After this clearance process is cancelled, it means that more than 1 billion small packages will need to switch to the much more complex T11 and T01 clearance processes. This led to delays in U.S. customs clearance, and goods piled up like mountains at airports and docks. The unpreparedness of the US customs system highlighted the logistical challenges of processing such a massive volume of small packages under standard clearance procedures.
Therefore, if U.S. customs is not ready by May 2nd, there may still be a new buffer period, but cancellation is only a matter of time. This means that the tax-free era for cross-border e-commerce may be coming to an end, forcing a significant shift in how Chinese sellers operate in the US market.
The changes go far beyond this. Trump has started a new round of tariff increases.
On April 2nd, U.S. time, Trump announced at the White House the implementation of “reciprocal tariffs” on trade partners: First, a “minimum baseline tariff” of 10% will be established for trade partners, effective at 12:01 AM Eastern Time on April 5th; Second, higher tariffs will be imposed on certain trade partners, effective at 12:01 AM Eastern Time on April 9th, involving countries including China, Japan, and Vietnam. These tariffs will apply on top of any existing duties, further escalating the costs for importers.
As a result, the pressure on the cross-border e-commerce and export trade industries has sharply increased.
02 Pressure Faced by Cross-Border E-commerce
Recently, many cross-border logistics providers had already sensed something was wrong. Before the White House officially issued the announcement, they began to suspend shipments to the United States. This preemptive action indicates the level of anticipation and concern within the logistics industry regarding the policy change. Some logistics providers notified that if the T86 clearance policy is cancelled, customs clearance will be carried out according to the new model. Costs will inevitably rise and will be settled based on new quotation tables.
As a result, the cross-border e-commerce logistics and warehousing model will undergo significant changes. It is expected that in the next three years, the number of overseas warehouses established by Chinese cross-border e-commerce companies in the United States will continue to increase. This shift towards localized warehousing and fulfillment aims to mitigate the impact of tariffs and potentially speed up delivery times for US consumers.
Localized warehousing and stocking are actually inevitable choices. In fact, most cross-border e-commerce companies that have reached a certain scale already stock and ship locally. Therefore, choosing localized stocking is not only a measure to cope with the new tariff policy but also a requirement for business development, allowing for faster delivery, better inventory management, and improved customer service.
Cross-border e-commerce sellers must inevitably experience a wave of pain and will have to re-select products and switch business directions. Sellers need to calculate all the detailed costs under the impact of the T86 policy implemented in each U.S. state and re-price their products. If the product pricing is still acceptable to their target audience, they can choose to continue with that category. If not, they must decisively re-select products and switch business directions, potentially focusing on higher-value items or products with less price sensitivity.
This will largely raise the threshold for doing cross-border e-commerce, eliminating a number of small and medium-sized sellers who previously used the “ant moving house” strategy to play guerrilla warfare. These smaller players, often operating on thin margins, will find it difficult to absorb the increased costs and complexities. Sellers with certain financial strength and brand influence will occupy more market share in the future, as they are better positioned to invest in overseas infrastructure and navigate the new regulatory landscape.
Overall, the entire cross-border e-commerce industry will experience a cycle of “soaring costs - model transformation - market shakeout,” transitioning from a crude “low price + extensive product listing” model to a refined “capital + brand” model. This shift will necessitate greater investment in branding, product quality, and efficient supply chain management.
Impact on Specific Product Categories: Certain product categories that historically relied heavily on the T86 exemption due to their lower average price points, such as apparel, accessories, and small electronics, are likely to be disproportionately affected. Sellers in these categories will face the toughest decisions regarding pricing and product selection. Conversely, higher-value items with greater profit margins might be able to absorb the tariff costs more readily.
Strategies for Chinese Sellers to Mitigate the Impact: Chinese sellers will need to adopt various strategies to navigate this new environment. This includes:
Optimizing Supply Chains: Exploring efficiencies in their supply chains to reduce overall costs.
Negotiating with Logistics Providers: Seeking more favorable rates and exploring different shipping options.
Investing in Technology and Automation: Utilizing technology to streamline customs processes and inventory management.
Developing Stronger Branding: Building brand loyalty to justify potentially higher prices.
Exploring Alternative Sales Channels: Diversifying their sales channels beyond traditional e-commerce platforms.
Focusing on Product Innovation and Differentiation: Offering unique or high-quality products that command higher prices.
Considering Setting Up Operations Outside of China: While complex, some larger sellers might explore establishing manufacturing or fulfillment centers in other countries not subject to these tariffs.
The Role of Chinese Government Policies: The Chinese government may implement policies to support its cross-border e-commerce sector during this transition. This could include tax rebates, subsidies for overseas warehousing, or trade negotiation efforts with the US.
Impact on Marketing and Sales Strategies: With increased costs, Chinese sellers may need to shift their marketing focus from solely price competitiveness to highlighting product quality, brand value, and customer experience. They may also need to adjust their pricing strategies to reflect the new tariff realities.
03 Impact on US Consumers
The cancellation of the T86 exemption and the imposition of new tariffs are likely to have consequences for American consumers as well.
Potential for Price Increases: The added costs faced by Chinese sellers will likely be passed on to US consumers in the form of higher prices for a wide range of imported goods.
Reduced Availability of Certain Low-Priced Goods: Some very low-priced items that relied heavily on the T86 exemption might become less available as sellers find it unprofitable to import them.
Impact on Small US Businesses: US small businesses that rely on sourcing low-cost goods from China for resale may also face increased costs, potentially impacting their competitiveness.
Potential Impact on Employment: While the tariffs are intended to protect US industries, the increased costs for consumers and businesses could potentially lead to reduced consumer spending and economic activity in certain sectors. Conversely, there might be a slight increase in demand for domestically produced goods, potentially creating some jobs.
Alternative Markets for Chinese Sellers: Faced with increased challenges in the US market, Chinese cross-border e-commerce sellers may increasingly focus on other international markets, such as Europe, Southeast Asia, and South America, where trade policies might be more favorable.
The cancellation of the T86 tax exemption and the implementation of new tariffs by the Trump administration mark a significant turning point for Chinese cross-border e-commerce sellers operating in the US market. The era of largely tax-free entry for small-value goods appears to be drawing to a close, ushering in a period of increased costs, logistical complexities, and intense competition.
Chinese sellers will need to adapt quickly and strategically, focusing on building stronger brands, optimizing their supply chains, and potentially exploring alternative markets. The impact will also be felt by US consumers, who are likely to see higher prices for many imported goods. The long-term implications for the global e-commerce landscape remain to be seen, but this policy shift undoubtedly signals a move towards a more regulated and potentially more expensive environment for international online trade. While the article focuses on the immediate impact, the potential for legal challenges or future policy adjustments by either the US or Chinese governments could further shape the trajectory of this evolving trade relationship.