1 00:00:02,560 --> 00:00:09,800 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carol and 2 00:00:09,920 --> 00:00:12,440 Speaker 1: this is Here's Why, where we take one news story 3 00:00:12,520 --> 00:00:14,640 Speaker 1: and explain it in just a few minutes with our 4 00:00:14,720 --> 00:00:16,400 Speaker 1: experts here at Bloomberg. 5 00:00:20,480 --> 00:00:25,520 Speaker 2: We are terrifing all the deminimous imports. We are going 6 00:00:25,560 --> 00:00:28,800 Speaker 2: to set a level, and it will be a global level. 7 00:00:28,920 --> 00:00:32,839 Speaker 1: The administration is doing away with Deminimus, which also I 8 00:00:32,840 --> 00:00:36,560 Speaker 1: think will impact small companies much more dramatically than the 9 00:00:36,680 --> 00:00:37,160 Speaker 1: large ones. 10 00:00:37,200 --> 00:00:39,159 Speaker 2: So it will be very challenging environments. 11 00:00:39,320 --> 00:00:42,960 Speaker 1: Unless we have clarity in this question, we will have 12 00:00:43,000 --> 00:00:46,880 Speaker 1: to suspend the shipment of goods via the postal networks 13 00:00:46,920 --> 00:00:50,800 Speaker 1: from Germany into the US. By name, it might be 14 00:00:50,880 --> 00:00:53,880 Speaker 1: a small matter, but in reality it's a huge change 15 00:00:53,960 --> 00:00:57,240 Speaker 1: for American consumers and those who sell goods to them 16 00:00:57,240 --> 00:01:00,720 Speaker 1: from abroad. As part of his reshaping of mobal trade, 17 00:01:00,920 --> 00:01:04,120 Speaker 1: US President Donald Trump has closed what was known as 18 00:01:04,120 --> 00:01:07,320 Speaker 1: the Deminimus exception that allowed packages worth less than eight 19 00:01:07,400 --> 00:01:09,920 Speaker 1: hundred dollars to be shipped into the US without filling 20 00:01:09,959 --> 00:01:13,880 Speaker 1: out customs paperwork or paying duties. Four million of these 21 00:01:13,920 --> 00:01:16,560 Speaker 1: parcels used to enter the US every day, and the 22 00:01:16,600 --> 00:01:19,520 Speaker 1: effects of closing the loophole are being felt far from 23 00:01:19,520 --> 00:01:23,479 Speaker 1: America's borders. Postal services and Europe and elsewhere have suspended 24 00:01:23,520 --> 00:01:25,960 Speaker 1: parcel deliveries to the US as they tried to figure 25 00:01:26,000 --> 00:01:29,480 Speaker 1: out how to adapt. So here's why a big tariff 26 00:01:29,560 --> 00:01:34,600 Speaker 1: problem comes in small packages. Bloomberg's trades are Brandon Murray 27 00:01:34,680 --> 00:01:37,319 Speaker 1: joins me. Now for more Brandon, First of all, what 28 00:01:37,520 --> 00:01:40,319 Speaker 1: was the history of the dominimus exception in the US. 29 00:01:40,520 --> 00:01:43,840 Speaker 2: The history dates back to the nineteen thirties when it 30 00:01:43,920 --> 00:01:46,880 Speaker 2: was a big nuisance for the government to try to 31 00:01:46,959 --> 00:01:51,000 Speaker 2: process goods that were coming into the country, so they 32 00:01:51,040 --> 00:01:54,279 Speaker 2: just made the dominimous exception very low. It was around 33 00:01:54,320 --> 00:01:58,240 Speaker 2: a dollar and it stayed that way for many decades 34 00:01:58,320 --> 00:02:02,720 Speaker 2: until about the nineteen ninety With the onset of e commerce, 35 00:02:03,080 --> 00:02:05,960 Speaker 2: the government saw it less of a nuisance and more 36 00:02:06,000 --> 00:02:06,920 Speaker 2: of an opportunity. 37 00:02:07,240 --> 00:02:09,480 Speaker 1: Okay, so that threshold then raised as far as eight 38 00:02:09,560 --> 00:02:13,480 Speaker 1: hundred dollars before it was abolished. What sort of effect 39 00:02:13,639 --> 00:02:16,600 Speaker 1: does this change, this abolition of this exemption mean? What 40 00:02:16,680 --> 00:02:18,760 Speaker 1: kind of businesses are most affected by us? 41 00:02:18,840 --> 00:02:22,560 Speaker 2: Well, this loophole that's existed for many years now became 42 00:02:23,000 --> 00:02:27,800 Speaker 2: so wide that something like one point three billion packages 43 00:02:27,840 --> 00:02:31,800 Speaker 2: were coming into the US every year. These are smaller items. 44 00:02:32,120 --> 00:02:34,959 Speaker 2: Their value, as we've said, had to be under eight 45 00:02:35,080 --> 00:02:37,960 Speaker 2: hundred dollars, and there was just a lot of them, 46 00:02:37,960 --> 00:02:40,359 Speaker 2: and there was they were very hard to process for 47 00:02:40,480 --> 00:02:44,400 Speaker 2: the Customs Agency. Many of them came through the mail, 48 00:02:44,800 --> 00:02:48,960 Speaker 2: and many of them were from merchants that were some 49 00:02:49,160 --> 00:02:52,320 Speaker 2: small businesses, but others, you know, were the big e 50 00:02:52,360 --> 00:02:56,919 Speaker 2: commerce companies like Shean and Temu from China. That really 51 00:02:57,040 --> 00:03:00,079 Speaker 2: led to a flood of these goods coming in and 52 00:03:00,160 --> 00:03:04,040 Speaker 2: it no longer was an opportunity. It became a threat 53 00:03:04,080 --> 00:03:05,280 Speaker 2: to the American economy. 54 00:03:05,480 --> 00:03:08,080 Speaker 1: Yeah, indeed, and that's certainly how Donald Trump has framed 55 00:03:08,080 --> 00:03:11,160 Speaker 1: this change as well. And we were warned that this 56 00:03:11,280 --> 00:03:12,920 Speaker 1: was coming quite a few months ago. 57 00:03:13,400 --> 00:03:13,760 Speaker 2: Now. 58 00:03:14,360 --> 00:03:17,480 Speaker 1: I've talked about the disruption from European postal services as 59 00:03:17,520 --> 00:03:20,480 Speaker 1: a result of this. Why haven't delivery service has been 60 00:03:20,520 --> 00:03:21,639 Speaker 1: better prepared for this? 61 00:03:22,200 --> 00:03:24,400 Speaker 2: Well, Like a lot of things that President Trump has 62 00:03:24,440 --> 00:03:28,760 Speaker 2: done in his second term, this came very quickly. Even 63 00:03:28,800 --> 00:03:33,160 Speaker 2: a couple months isn't enough time for dozens and dozens 64 00:03:33,160 --> 00:03:37,520 Speaker 2: of postal services around the world to sync their systems 65 00:03:37,640 --> 00:03:41,040 Speaker 2: up with the US Customs Agency to be able to 66 00:03:41,080 --> 00:03:44,960 Speaker 2: meet the requirements. Some of those requirements mean that the 67 00:03:45,000 --> 00:03:48,040 Speaker 2: tariff on the item has to be paid by the sender. 68 00:03:48,440 --> 00:03:51,440 Speaker 2: So if you go into a post office in Sweden 69 00:03:51,720 --> 00:03:54,560 Speaker 2: and you want to send something that's over one hundred 70 00:03:54,560 --> 00:03:58,200 Speaker 2: dollars to someone in the US, you now have to 71 00:03:58,240 --> 00:04:01,480 Speaker 2: fill out the paperwork that clears what that item is 72 00:04:01,800 --> 00:04:03,920 Speaker 2: and you have to pay the tariff for it there, 73 00:04:04,400 --> 00:04:09,280 Speaker 2: and that postal service has to transmit that transaction to 74 00:04:09,480 --> 00:04:13,760 Speaker 2: the US agency for it to be legitimate and it 75 00:04:13,800 --> 00:04:16,880 Speaker 2: can go ahead. And what those postal services have said is, 76 00:04:17,320 --> 00:04:21,200 Speaker 2: we don't have the mechanisms set up to do that now, 77 00:04:21,320 --> 00:04:25,520 Speaker 2: and therefore we're suspending the packages that would qualify now 78 00:04:25,800 --> 00:04:29,640 Speaker 2: to the US, which has the potential to lead to 79 00:04:29,680 --> 00:04:32,400 Speaker 2: a lot of piling up of goods that otherwise would 80 00:04:32,440 --> 00:04:34,000 Speaker 2: be flowing into the US, and. 81 00:04:33,960 --> 00:04:36,440 Speaker 1: It could potentially have huge damages to all the businesses 82 00:04:36,480 --> 00:04:40,560 Speaker 1: that are selling smaller and lower value packages to consumers 83 00:04:40,560 --> 00:04:42,760 Speaker 1: in the US. What does the new normal look like 84 00:04:42,920 --> 00:04:45,120 Speaker 1: both for the shoppers in the US who are trying 85 00:04:45,160 --> 00:04:47,040 Speaker 1: to buy things from abroad, but also for all these 86 00:04:47,040 --> 00:04:48,640 Speaker 1: companies that are used to shipping there. 87 00:04:48,760 --> 00:04:51,440 Speaker 2: Well, it depends on how long it takes for the 88 00:04:51,520 --> 00:04:56,160 Speaker 2: US Customs and Border Protection Agency to get these systems 89 00:04:56,240 --> 00:04:59,919 Speaker 2: up and running. They have brought on board some companies 90 00:05:00,200 --> 00:05:04,200 Speaker 2: deal with these kinds of transactions, private individual vendors who 91 00:05:04,200 --> 00:05:07,240 Speaker 2: can do this for them, but it's nowhere near the 92 00:05:07,279 --> 00:05:10,720 Speaker 2: amount of help that's going to be necessary to deal 93 00:05:10,760 --> 00:05:14,760 Speaker 2: with these something like four million packages a day on average, 94 00:05:14,839 --> 00:05:18,440 Speaker 2: so it could be weeks or even months before we 95 00:05:18,520 --> 00:05:22,160 Speaker 2: see the flow of these goods returning to any kind 96 00:05:22,200 --> 00:05:26,360 Speaker 2: of way that looks normal, but that doesn't do anything 97 00:05:26,400 --> 00:05:30,120 Speaker 2: to eliminate the paperwork that's necessary and the cost of 98 00:05:30,200 --> 00:05:33,200 Speaker 2: the tariff that has to be paid. So what we're 99 00:05:33,240 --> 00:05:35,960 Speaker 2: going to see and you'll see companies in the US 100 00:05:36,040 --> 00:05:39,560 Speaker 2: that will be welcoming this. The main street shops that 101 00:05:40,040 --> 00:05:44,599 Speaker 2: would want to sell, say yarn, don't have that competition 102 00:05:44,680 --> 00:05:48,640 Speaker 2: anymore from overseas. So there are some benefits to this 103 00:05:48,680 --> 00:05:52,200 Speaker 2: to the US economy, according to the Trump administration, but 104 00:05:52,360 --> 00:05:54,320 Speaker 2: there'll be a lot of hiccups along the way. 105 00:05:54,480 --> 00:05:56,120 Speaker 1: Of course, it's not just the US that has this 106 00:05:56,200 --> 00:05:58,720 Speaker 1: sort of exemption for small packages as well. Are other 107 00:05:58,760 --> 00:06:00,560 Speaker 1: countries looking to make similar changes. 108 00:06:00,680 --> 00:06:04,960 Speaker 2: So the US is eight hundred dollars Deminimus is very 109 00:06:05,080 --> 00:06:09,480 Speaker 2: generous by international standards. It's something like one hundred and 110 00:06:09,560 --> 00:06:13,760 Speaker 2: fifty euros in your area. I think it's around thirty 111 00:06:13,760 --> 00:06:18,280 Speaker 2: Canadian dollars for Canada. And countries are looking at this 112 00:06:18,600 --> 00:06:21,520 Speaker 2: and saying, maybe this is number one, a way to 113 00:06:21,600 --> 00:06:25,720 Speaker 2: raise revenue like the US is raising. And number two, 114 00:06:26,120 --> 00:06:29,960 Speaker 2: what happens when all of these cheap goods made in 115 00:06:30,400 --> 00:06:34,400 Speaker 2: say China, start flowing in our direction. What's that going 116 00:06:34,480 --> 00:06:37,359 Speaker 2: to do to our main street businesses. You've seen some 117 00:06:37,760 --> 00:06:40,520 Speaker 2: grumblings here in the UK that say this is a 118 00:06:40,560 --> 00:06:43,120 Speaker 2: threat to the high street boutiques, that if these goods 119 00:06:43,160 --> 00:06:46,160 Speaker 2: are allowed to flood into the UK there could be 120 00:06:46,200 --> 00:06:49,360 Speaker 2: some threats to local businesses. So there has been some 121 00:06:49,480 --> 00:06:53,080 Speaker 2: pushback by countries that are saying, you know, Demnimus had 122 00:06:53,120 --> 00:06:55,960 Speaker 2: its day, but maybe it's time we end it and 123 00:06:56,080 --> 00:06:59,200 Speaker 2: bring all this under the scrutiny of the customs and 124 00:06:59,279 --> 00:07:04,200 Speaker 2: border patrol agencies that protect countries from the abuse of 125 00:07:04,240 --> 00:07:04,920 Speaker 2: the system. 126 00:07:04,920 --> 00:07:07,680 Speaker 1: Thinking more broadly about this, is this the end of 127 00:07:07,920 --> 00:07:10,520 Speaker 1: easy international shopping online. 128 00:07:11,280 --> 00:07:14,960 Speaker 2: It's probably not the end of easy international shipping, but 129 00:07:15,120 --> 00:07:18,920 Speaker 2: it's probably the start of a period where it's not 130 00:07:19,160 --> 00:07:22,840 Speaker 2: so cheap and easy and accessible anymore. A lot of 131 00:07:22,880 --> 00:07:26,920 Speaker 2: those goods that would have come through under deminimus i e. 132 00:07:27,080 --> 00:07:31,760 Speaker 2: No tariff attached to it. They came via airplanes via 133 00:07:31,800 --> 00:07:35,640 Speaker 2: air cargo, which is a very expensive way to move goods. 134 00:07:35,800 --> 00:07:39,160 Speaker 2: But the calculation now might not work to send it 135 00:07:39,400 --> 00:07:42,480 Speaker 2: via air cargo, and they're going to shift to ocean cargo. 136 00:07:43,000 --> 00:07:46,880 Speaker 2: Ocean cargo is obviously much slower, it's cheaper, but it 137 00:07:46,960 --> 00:07:49,960 Speaker 2: will take three weeks to make it across the Pacific 138 00:07:50,000 --> 00:07:54,320 Speaker 2: from Asia to the US or Asia to Europe rather 139 00:07:54,400 --> 00:07:57,720 Speaker 2: than ten hours on an airplane. So this could be 140 00:07:57,760 --> 00:08:01,560 Speaker 2: the beginning of the end of cheap and fast items 141 00:08:01,560 --> 00:08:04,480 Speaker 2: delivered to your doorstep. It's going to go slower and 142 00:08:04,520 --> 00:08:05,600 Speaker 2: it's going to costume more. 143 00:08:05,760 --> 00:08:07,880 Speaker 1: Okay, when people be watching out for that with interest, 144 00:08:07,920 --> 00:08:10,600 Speaker 1: I'm sure Brandon Murray our trades are. Thank you very much. 145 00:08:11,320 --> 00:08:13,840 Speaker 1: For more explanations like this from our team of three 146 00:08:13,840 --> 00:08:17,040 Speaker 1: thousand journalists and analysts around the world, go to Bloomberg 147 00:08:17,080 --> 00:08:22,520 Speaker 1: dot com slash explainers. I'm Stephen Carroll. This is here's why. 148 00:08:22,680 --> 00:08:25,200 Speaker 1: I'll be back next week with more. Thanks for listening.