Australia’s small businesses face unprecedented disruption following the decision by Australia Post to suspend United States-bound small parcel services, following the US decision to eliminate the “de minimis” exemption that had enabled duty-free entry of parcels valued at US$800.
The US policy change, which will take effect from 29 August, subjects all shipments from Australia to a 10% tariff that must be collected upfront. The requirement of upfront collection, which is unusual to say the least, is a real challenge for postal services which are not designed to collect tariffs for importing nations.
Postal services across Europe, Japan and other nations are also suspending services while they work out how to perform this new function.
Australian small businesses, representing the majority of the nation’s exporters, will bear the heaviest burden from these changes. Having developed direct to consumer e-commerce strategies for the US market, retailers of distinctly Australian goods – including food, wine, cosmetics and clothing – are now making difficult decisions to halt sales to the US market or scrambling to organise alternative, significantly more costly, means of shipping goods to the United States.
Even once Australia Post resumes its services, these businesses will need to absorb or pass on the 10% tariff, which could price them out of the US market entirely.
Consumers in the United States are also likely to feel the impact of the new policy, at a time when households continue to grapple with cost-of-living pressures. American consumers have become accustomed to the convenience and low-cost options offered by overseas e-retailers. This dependence is reflected in the dramatic increase in the number of de minimis parcels handled by the United States Postal Service (USPS), up to 1.36 billion per year by 2024, from 134 million in 2015. With tariffs now extending to previously duty-free shipments, US consumers will face restricted access and price increases.
Removing the de minimis exemption brings to the surface the real concern from the United States, namely the hidden subsidies it complains are embedded in the international postal rules.
Indeed, China and Chinese online giant retailers, including Shein and Temu, are the real targets. An estimated 67% of the 1.36 billion low-value parcels received by the USPS are from China and Hong Kong. In response, the United States suspended the de minimis exemption for China in May, and now applies a tariff rate of 54%. Separately, having secured revisions to international postal rules, the United States has been collecting additional postal fees from China Post since 2020 following agreements reached after the Trump administration’s first-term threat in 2019 to withdraw from the international rules negotiated at the Universal Postal Union (UPU), the international agency to coordinate postal policies.
Removing the de minimis exemption brings to the surface the real concern from the United States, namely the hidden subsidies it complains are embedded in the international postal rules.
At the UPU, each of the 192 member nations pays fees (known as terminal dues) to cover the cost of handling each other’s international mail. As a developing country, China pays substantially less in a system designed to help businesses in developing countries access international markets. The disparity is stark, such that Amazon’s Vice President Paul Misener testified to the US Congress in 2015 that it was cheaper for a Chinese business to send a parcel from Shanghai to Virginia (US$1.12) than for a business in North Carolina to send the same parcel (US$1.94). For some time, the United States has been arguing that as the world’s second largest economy, China should not be afforded the benefit of preferential treatment designed to aid economic development – an argument the United States has rehearsed across many international organisations.
The US postal case is particularly revealing because it involves seemingly technical agreements about terminal dues and delivery fees that have become proxy battles for more fundamental questions. The recent extension of tariffs to de minimis parcels can be seen as another example of Trump’s heavy-handed use of trade policy to push its interests internationally. The timing is pointed – the UPU Congress will convene in Dubai from 8-19 September, just days after the policy takes effect and having already caused worldwide disruption.
While it remains to be seen what progress the United States might achieve regarding China’s developing country status, questions about the de minimis exemption and China’s contributions to the cost of international mail will certainly be high on the agenda. For Australia’s small exporters, the outcome will determine whether they can continue to compete in the US market or whether they are the collateral damage as multilateral cooperation fragments under the weight of US strategic rivalry with China.