BURST
It’s Christmas in August for Amanda Kaffka — but not in a good way.
Kaffka, owner of Vancouver-based knitting and crochet store The Crafty Jackalope, has been busy preparing advent calendar knit kits for her U.S. customers.
Usually she doesn’t mail out the $260 kits of yarn, patterns, thread and other accessories until the fall, but this year, she’s rushing to get packages out the door before Aug. 29.
That’s when the U.S. plans to eliminate its de minimis rule, a tariff exemption for goods shipped to the U.S. that are worth US$800 or less.
Aside from affecting American consumers, the removal of the provision will have a big impact on small Canadian businesses selling products to the U.S.
“With this new de minimis situation, it’s really freaking me out,” said Kaffka. “I’m frantically trying to pivot, put these boxes together, and honestly, I feel like Trump could still change his mind.”
Here’s what you need to know about the de minimis exemption and how its removal would affect Canadian small businesses.
What is the de minimis rule?
The little-known tax exemption has been in place in the U.S. since 1938, when U.S. Congress agreed to waive duties and fees in small-value goods where it’s not worth the time and expense to collect.
In 1938, this was on goods worth $1 or less, but rose steadily to its current $800, set in 2015.
The exemption allows parcels valued under $800 sent from all countries outside the U.S. to enter the country without being dinged import taxes.
But an executive order signed by U.S. president Donald Trump last month would remove this provision starting Aug. 29.
Why does the U.S. want to remove this exemption?
The Trump administration has described the de minimis rule as a “catastrophic loophole” and “big scam” that has facilitated fentanyl and opioid smuggling and allowed companies to flood the country with cheap imports without paying duty.
Halting the tariff exception makes sense on some level, said some experts.
“Of all the crazy things the Trump administration has come up with, this one is not particularly out of left field,” said Torsten Jaccard, assistant professor in economics at the University of B.C. “In a sense, this might be a reasonable policy.”
That’s because the volume and value of de minimis goods has skyrocketed, propelled by a massive growth in e-commerce and the growth of online retail behemoths like Amazon, Temu and Shein.
According to a White House fact sheet, the number of goods entering the U.S. via the de minimis rule rose from $153 million in 2015 to more than $1 billion in 2023. On average, U.S. customs officials process over four million de minimis shipments daily.
Many countries, including the EU, have discussed getting rid of their de minimis exemptions, said Jaccard. Some countries like Brazil and Indonesia have taken steps to reduce or remove it.
In May, the U.S. eliminated the de minimis exemption for goods coming from China and Hong Kong, where the majority of de minimis shipments to the U.S. originate.
Who is affected by this in Canada?
In Canada, small businesses selling niche or specialty items directly to U.S. consumers via their website or online marketplaces like Etsy or eBay will get hit.
“These are small shops or mom-and-pop operations that make things like boutique apparel or artisan foods who sell directly to markets in the U.S. and rely on that for their living,” said UBC economics professor Michael Devereux.
Jaccard also pointed out the removal of the de minimis exemption comes amid a general increase in tariffs, so small producers face a double whammy.
“Not only are you losing your exemption, the tariff rate that is applied to you without the exemption is increasing,” he said.
What will the tariff rate be?
According to the White House, goods shipped through the international postal system will be assessed one of two tariffs, an “ad valorem duty” equal to the tariff rate applicable to the country of origin, or, for six months, a specific tariff ranging from $80 to $200 depending on the country of origin’s tariff rate.
For Canadian exports the blanket tariff is currently at 35 per cent, although negotiations are still underway.
What if the items are CUSMA-compliant?
If the exports qualify under the Canada-U.S.-Mexico Agreement (CUSMA) signed in 2018, the items, in theory, could escape the hefty tariff.
But proving your merchandise qualifies under CUSMA is onerous and requires “serious time and money” for exporters, said Jaccard — something smaller, independent sellers might not be able to afford.
What can Canadian businesses do?
While it may be time-consuming for Canadian exporters to get Canada-U.S.-Mexico Agreement (CUSMA) certification, it might be the new reality for businesses wanting to sell items to the U.S.
An analysis by RBC found that roughly 86 per cent of Canadian exports to the U.S. should be able to cross the border duty-free under CUSMA’s rules of origin requirements, even as only 38 per cent did so under CUSMA provisions in 2024.
Devereux said Canadian businesses can also try to expand its markets to Europe and Asia or drum up more business domestically.