In a major shift in U.S. trade policy, President Donald Trump recently signed an executive order suspending the century-old de minimis exemption that allowed U.S. consumers to import goods valued under $800 duty-free.
This change is poised to disrupt the intricate cross-border trade economy, particularly between San Diego and Tijuana, fundamentally altering how companies have operated across the border.
The de minimis exemption had enabled businesses to ship goods from Tijuana warehouses directly to U.S. consumers without incurring import taxes, taking advantage of the proximity and lower labor costs.
However, with the suspension of this rule, all goods entering the U.S. will now be subject to tariffs based on their country of origin.
The U.S. Customs and Border Protection cited concerns about criminal activity, including the smuggling of narcotics and counterfeit goods, as one of the reasons for the change.
Statistics indicated that a staggering 98% of narcotics and 97% of counterfeit goods seized by CBP last year were found in de minimis shipments.
In the wake of the suspension, U.S. consumers have already started feeling the pinch of increased prices and unexpected tariff charges, affecting both foreign brands and American-made products.
The United Nations global postal union noted that after the change was enforced on August 29, postal traffic to the U.S. plummeted by 80%, with 88 countries, including major economies like Germany, Japan, and Mexico, halting deliveries to the U.S.
With existing trade regulations under the United States–Mexico–Canada Agreement (USMCA), goods that meet specific rules of origin can still enter the U.S. duty-free, particularly those from the automobile, clothing, and agricultural sectors produced in Mexico.
However, items that do not qualify, such as those assembled in Asia and routed through Mexico, still face the standard U.S. tariff structure.
The suspension complicates operations under Mexico’s IMMEX manufacturing and trade program, which previously allowed companies to bring in goods tax-free into Tijuana for temporary storage or assembly, provided they were re-exported.
Now, once these goods cross into the U.S., they are subject to full duties, significantly impacting the logistics for businesses relying on this infrastructure.
William Jansen, Director of Customs Brokerage at Seko Logistics, highlighted the significance of Tijuana as a hub for low-value product shipments before this change.
Many consumers were unaware that their de minimis orders, which arrived labeled as domestic products, originated from Tijuana warehouses.
Major U.S. brands in the apparel industry have relied on this system to maintain competitive pricing.
According to Mauricio Diaz, President of U.S. Customs at the JD Group, a logistics company serving the Cali-Baja region, the price implications of this change will be significant, with some products likely seeing increases of 50% or more.
For instance, a $20 purse from China could now cost approximately $34 due to the additional duties.
Diaz argued that this change negatively impacts U.S. companies, many of which had previously manufactured these products domestically.
The fallout from this suspension on the cross-border economy has already resulted in investment slowdowns, as companies reconsider their operations in Tijuana.
Acosta, who is Vice President of RL Jones, a customs brokerage, speculated a potential downsizing for many businesses in the region, which could result in job losses for San Diegans.
Experts estimate that around one in three businesses in the Otay Mesa area could be affected due to the cessation of rapid logistics that previously characterized the region’s trade infrastructure.
Local business leaders express concerns that companies may shift to importing goods directly into larger U.S. hubs like Los Angeles or New York, bypassing the Tijuana-San Diego corridor completely, which could have detrimental effects on local employment.
As noted by Diaz, the JD Group alone employs about 200 people in San Diego.
The uncertainty in trade policies complicates the landscape for small businesses, according to Myriam Mendoza, International Business Affairs Coordinator at the San Diego Chamber of Commerce.
Many smaller enterprises lack the resources to navigate the revamped trade regulations and may struggle to remain competitive in this new environment, resulting in higher prices and extended delivery times for consumers.
Additionally, logistical challenges have compounded for smaller businesses due to the end of the de minimis rule, as they must now provide more comprehensive documentation to customs, including details on component origins for duties.
Jansen emphasized that the additional workload required for customs brokers would lead to longer hours as they assist businesses with compliance.
While it remains unclear precisely how the negotiations between the U.S. and Mexico will unfold, the ongoing trade instability continues to present challenges to the business landscape along the San Diego-Tijuana border.
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