Will the US remove the $800 import duty-free threshold? Don't panic

Recently, the U.S. Import Security and Fairness Act has attracted considerable attention in the industry.

According to the bill, the United States will tighten tariff restrictions on imported goods, and the situation of "imported goods below $800 can be tax-free" may be broken. Independent sites and platform self-shipping sellers who benefit from this policy will be significantly impacted. Some industry insiders also believe that it will take some time for the bill to be implemented, and the scope of impact is limited, and it will not constitute a large-scale attack on the cross-border e-commerce industry.

At the same time, the tariffs imposed by former US President Trump on Chinese goods in 2018 will expire on July 6 and August 23 this year. Many people believe that President Biden is expected to announce a reduction in tariffs on China in the near future . This is a good thing for sellers whose main overseas market is the United States. Biyi Shares, Lechuang and others may benefit.

US $800 tax-free threshold to change, cross-border sellers may suffer

In January this year , U.S. Congressman Earl Blumenauer proposed the "Secure and Fair Import Act" as part of the "American Competitiveness Act of 2022", hoping to strengthen U.S. international trade import laws and prevent goods from non-market economies such as China and countries on the U.S. "Intellectual Property Watch List" from taking advantage of minimum import thresholds to enter the United States. This view is widely supported in the United States.

On June 15, local time , more than 100 CEOs from Amazon, Google's parent company Alphabet, Microsoft and other US companies signed a letter calling on the US Congress to pass the Competition Act. The issue of modifying the tax-free threshold mentioned in the import law will result in a large number of US-bound packages having additional tax costs, which has attracted great attention from the domestic cross-border e-commerce industry.

Since 2016, the United States has raised its minimum tariff limit from $200 to $800. Goods below this amount can enter the country without paying taxes, opening a green channel for imported products.

But this has caused dissatisfaction among many American companies. Some believe that this overly lenient threshold has helped online companies such as Amazon, most of whose products are sourced from China, to circumvent tariffs.

"In the United States, the number of packages we receive each day has skyrocketed to more than 2 million, a number that will only continue to climb in the coming years. As long as foreign companies selling goods in the United States continue to split up shipments to evade tariffs and oversight, American companies will continue to be at a competitive disadvantage in terms of cost," Blumenauer said.

The $800 rule also costs U.S. Customs a lot of revenue. An industry insider learned from Customs that the volume of these shipments has grown exponentially: 636 million packages entered the United States in fiscal year 2020, and 800 million in fiscal year 2021.

If the new bill is implemented and the United States cancels the "tax-free" rule for imported goods not exceeding $800, what impact will it have on domestic cross-border sellers?

1. The price advantage is weakened.

With the support of a sound domestic supply chain, lower prices have always been an advantage for Chinese products exported, allowing cross-border sellers to compete with their counterparts in the United States. However, if a new tariff cost is added, in order to ensure appropriate profits, sellers must raise prices to transfer costs, and the original price advantage will be wiped out.

The European VAT tax is a precedent. Amazon seller Wang Tianyu mentioned that after the European tax reform, the overall order volume of the European site has declined significantly, and profits have also declined accordingly. The price increase has led to a sharp drop in sales, and it is difficult to maintain the original price, so many sellers are in trouble.

2. Independent sites and self-shipping sellers were affected.

These two types of sellers are heavy users of direct mail and are the first to be affected by the new law.

The impact on independent sites will be discussed in detail below, but here we will first look at sellers who ship goods on the platform themselves. Taking Amazon as an example, about 70% of third-party sellers use FBA to ship goods, and sellers who ship goods on their own account for nearly 30%, among which a large number of wholesale sellers ship goods through direct mail channels; in addition, some smaller platforms do not have designated logistics channels, and direct mail is also the preferred channel for sellers.

The advantages of direct mail delivery are obvious. For example, a seller of bulk goods has tens of thousands of SKUs. If all products are stocked in overseas warehouses, the inventory pressure will be huge; while for sellers who ship products directly from China, there is almost no pressure on the seller. For example, if a consumer places an order for a keychain, the seller can immediately purchase it and then ship it. Direct mail makes inventory controllable and product selection more flexible, so it has become the main operation and delivery mode for bulk goods sellers.

Many categories and products of wholesale sellers are not allowed to stock in bulk. Amazon seller Wang Tianyu said that although there is less tariff cost, direct mail products do not have much price advantage compared with FBA products. "We ship FBA products by ship in batches, and the cost is much lower than direct mail because they ship individually. For example, if I send a mobile phone to the United States, it may cost 80 or 100 yuan, but if I ship it by ship, I may only need 5 yuan for shipping. Their cost is about us, so the selling price is also higher."

For sellers with a large number of SKUs, direct mail is already a cost-effective model. However, if the new law is implemented, sellers who ship their own goods will become the main group affected, and their business model will inevitably have to adjust - compressing profits to maintain customer base, or raising prices to maintain profits.

In the case of price increases, sellers will pass on the additional tax costs to consumers. The Hill, an American media outlet, believes that revising the tariff law could be equivalent to a significant increase in sales tax.

He gave an example, assuming that a consumer buys a pair of shoes for $100 from a retailer. There is a 98% chance that the shoes are made overseas and a 73% chance that they are made in China. Assuming that the shoes are imported, there are two situations:

1. The retailer imports the shoes as part of a bulk import, which means that the nearly $20 that consumers pay is a tariff that the retailer has to pay to the federal government;

2. Retailers still import shoes, but not in the form of bulk purchases, but send the shoes directly from overseas manufacturers to consumers, completing sales and delivery within one day. At this time, since the goods are sent to individuals and the value is no more than $800, the tariff law will exempt consumers from any tariffs and other fees. With this minimal tariff exemption, sellers can sell shoes for $85 (of which $5 is shipping).

It is not difficult to see that if the new tariff law is implemented, the additional costs will most likely be paid by American consumers, and as a result, related sellers will also lose a number of customers.

It will take time for the bill to be implemented and its impact will be limited

Although the launch date has not been determined, the new law has caused a lot of concern in the industry. So can self-shipping sellers switch to FBA or overseas warehouses to adapt to the new law?

Industry insiders say that changing the e-commerce model is not that simple. Not all sellers can accept FBA's pre-stocking nature. If the goods are not sold after being sent, the sellers will face the risk of capital occupation. Distributor sellers ship best-selling products to overseas warehouses by sea and ship directly after the order is placed. This not only improves logistics efficiency but also shortens the capital recovery cycle. It is a compromise option for comprehensive sales and costs, but it is expensive and applicable to limited products. If the new bill is introduced, sellers who ship their own goods will need to combine self-shipping, FBA and overseas warehouse channels to find the best solution.

But the market is not entirely pessimistic. Da Weige, a senior industry logistics expert, believes that the bill has not yet been implemented and it will take time to be implemented. Even if it is implemented, the impact will be relatively limited for three reasons.

1. Not many sellers use direct mail.

On mainstream US platforms such as Amazon, 70% of sellers use FBA and declare customs through this model; on other relatively smaller platforms, with the combined effects of Trump's price increases in third countries and the epidemic, sellers have made some adjustments to light and small products and started to move towards relatively large or high-quality products. Fewer and fewer sellers use direct mail channels, and some delivery needs have shifted to dedicated lines, which are used for formal customs declarations.

2. The policy has not yet been actually released, and it is not clear to what extent the minimum tariff standard will be reduced from US$800.

The Universal Postal Union is a global service that is convenient for the people. If the United States completely cancels the duty-free period for imported goods below $800, it will have some impact on sellers. But this is not very realistic, because the United States Postal Service did not withdraw from the Universal Postal Union in the end, so it needs to continue to carry this universal service business, and it will still allow direct mail to enter the United States.

The current US tax-free threshold of $800 is very loose in the world. Currently, 60 to 70 percent of direct mail is tax-free. The United States has not withdrawn from the Universal Postal Union. At most, it will set a tax-free threshold this time, rather than completely abolishing tax-free. For example, it will set a new tax threshold like Europe, and the price of many products does not reach $100, so the partial reduction of the tax-free threshold will not affect sellers.

3. It will take some time for the bill to be implemented.

If the United States adjusts its tariffs, there will need to be a national document stating how much the tariff will be adjusted from $800. Even if this document is suddenly released, it will take some time to implement it.

For example, if the document is planned to be implemented in 2023, then more customs personnel or customs equipment will be needed in the process to truly implement this matter. It is not that once a document is issued, it can be implemented immediately. This is impossible. Because the number of packages arriving at the US customs every day is too large, not 10,000 or 20,000 pieces, but hundreds of millions of pieces. Without these personnel and facilities, it is impossible to handle it.

It seems that the impact of the new law on platform-type sellers is limited, so there is no need to be too panic. However, in the field of independent stations, direct mail is one of the main delivery methods, and its impact on independent station sellers cannot be underestimated.

Independent station sellers may face a heavy blow

With the development of cross-border e-commerce today, there are not many sellers such as Amazon, eBay, and AliExpress that use direct mail parcels, but there are many independent website sellers who still use this logistics model.

Wang Zhifei, an industry insider, said that for independent website sellers, direct mail of small packages can help them save a lot of taxes. If this tax-free policy is implemented, it will have a direct impact on sellers who ship goods in small packages.

Independent station sellers generally use the logistics model of direct mail small packages + overseas warehouses for delivery. Relatively large sellers often use overseas warehouses for bulk stocking, which may also involve small package delivery. However, for smaller independent station sellers, generally only products that sell well are stocked in overseas warehouses. If large quantities of goods are stocked in overseas warehouses, the financial pressure will be greater, and their delivery is mostly direct mail small packages.

As for the specific proportion of independent station sellers using direct mail parcels, Wang Zhifei believes that it is mainly related to the size of the sellers, business model, etc. However, according to his understanding, the proportion of small and medium-sized sellers is very high. Industry statistics have shown that about 80% of independent station sellers use the direct mail parcel model.

After sellers who use direct mail parcels lose their tax benefits, their operating costs will visibly soar. While raising prices to ensure profits, orders will inevitably be affected.

Then, these sellers who use more direct mail parcels will face two problems: one is price adjustment, and the other is transformation.

Wang Zhifei further explained that cross-border sellers have no control over policy issues. Since this decree is to be implemented, sellers must add taxes to product prices based on the tax rate. For users, it is not easy for them to accept price increases. Sellers will lose some customers accordingly, and it will be detrimental to the retention of users. The more tax points are added, the greater the impact on sellers.

In addition to raising prices, sellers may also need to undergo transformation, which may involve changing product lines or markets, depending on the seller's operating conditions.

If the tax-free policy is really implemented, it will even force some small and medium-sized sellers to change their delivery models, which will directly affect their capital turnover.

Industry insiders believe that this may be another blow to independent website sellers following Apple’s privacy policy changes and PayPal’s account blocking incident.

Last October, Apple iPhone adjusted its privacy policy, and a feature it developed called App Tracking Transparency (ATT) sparked concerns among many digital advertising companies. After the policy adjustment, it will become more difficult for advertisers to track users. If advertisers have no choice but to blindly place ads in the absence of Apple data, this will undoubtedly increase the difficulty of attracting traffic.

According to Wang Zhifei, the advertising coverage rate of iOS system in the United States is very high, so the impact on the US market will definitely be great after the privacy agreement comes out. Sellers cannot control user data and certainly cannot accurately grasp user information. If they want to achieve the same sales performance as before, they must invest more costs, and the investment of sellers in marketing and advertising has increased sharply.

Wang Zhifei believes that the release of Apple's privacy policy is equivalent to a small reshuffle of independent website sellers. If the seller's advertising team is good enough, they can move up to a higher level in this link, otherwise they are likely to be eliminated.

Another blow to independent website sellers comes from PayPal deductions. In early April this year, many independent website sellers found that their PayPal account funds were abnormal, and even a big seller's PayPal account was deducted more than 50 million yuan.

On June 1 , PayPal once again deducted a large amount of funds from sellers' accounts. According to the whistleblower, the amount involved this time was as high as 40 million US dollars. PayPal dealt a fatal blow to some sellers, and some companies were forced to disband. An insider revealed that PayPal may continue to clean up account funds in the next step.

From Apple's privacy policy to PayPal deductions to the possible tax exemption policy, independent website sellers cannot escape every time. With the combination of multiple factors, independent website sellers are not having an easy time.

Wang Zhifei believes that if the tax-free policy really comes into effect, sellers will consider reducing their dependence on the US market, lowering the proportion of sales in that country, and trying to enter emerging markets such as Southeast Asia and Africa.

Although the possible tax exemption policy will have an impact on the US market, compared with other markets, the overall environment of the US market is relatively relaxed. There are many local consumers and their consumption power is obvious to all. It is a very mature market. Moreover, US President Biden may lower tariffs on China, which will benefit a group of cross-border sellers.

Biden may lower tariffs on China, and a group of sellers will benefit

According to the Wall Street Journal, US President Biden is expected to soon cancel some tariffs on Chinese imports to curb rising consumer prices in the United States . It is reported that Biden may soon announce his decision to cancel some tariffs on China.

The market's expectations for the removal of tariffs are not without reason, as many tariff provisions will expire automatically. Analysts pointed out that the first batch of tariffs imposed by the United States on $34 billion of Chinese imports expired on July 6, another batch of tariffs on $16 billion of Chinese imports will also expire on August 23, and another batch of tariffs on $200 billion will expire on September 24.

People familiar with the matter said the scope of tariff cancellations could include consumer goods such as clothing and school supplies, and a broad framework would be launched later to allow importers to apply for tariff exemptions. However, due to differences of opinion within the government, this has added uncertainty to whether Biden will announce the cancellation of some tariffs on Chinese goods, resulting in the decision being delayed .

However, there were early signs that the United States would cancel tariffs. As early as June 18, when asked whether he had decided to relax tariffs on China, Biden said he was making up his mind about it.

One of the reasons Biden is determined to cancel tariffs is to curb inflation. In recent months, U.S. inflation has hit a 40-year high. Under pressure from high prices, canceling tariffs on China has become a problem that the U.S. government has to face.

For American consumers, the elimination of tariffs on China will allow them to enjoy Chinese-made products at lower prices . It is also good news for Chinese sellers , as more sellers will be able to tap into this mature e-commerce market at low cost .

Analysts at domestic securities firms said that with raw materials and shipping prices currently at high levels, tariff exemptions can ease the cost pressure on companies exporting to the United States and improve profitability. Companies with a high proportion of exports to the United States are expected to benefit.

Products of Jiuqi Co., Ltd., one of the major bicycle product exporters in China, are included in the tariff exemption list. Biyi Co., Ltd. exports air fryers, air ovens, deep fryers and other heating kitchen appliances to the United States, and some of its products are included in the tariff exemption list.

In response to the impact of tariff cancellation on its operations, the well-known best-selling brand Leckey mentioned that if the United States eventually lowers tariffs on Chinese exports, it will have a certain positive impact on the company.

Tax policies are beyond the control of cross-border sellers, but for them, the US market is still a mature market worth investing in. With the uncertainty of some policies, cross-border sellers need to put globalization on the agenda in addition to digging for gold in the US market to reduce their dependence on a single market.

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