As of Friday, Canada’s small businesses can no longer ship small packages to the U.S. duty-free — and some online sellers are worried that their companies won’t survive the hit.
The nearly century-old de minimis exemption, which in recent years allowed goods under $800 US to enter the U.S. without extra fees, is ending as a July executive order by U.S. President Donald Trump takes effect.
That means those shipments will now be subject to duties of up to $200 US, depending on the country of origin, and Canadian small businesses with American customers will be smacked with extra costs that eat into their profits.
“We have cut off all of our shipping to the United States because, right now — with the amount of risk and lack of information on shipping to the States — we can’t justify it,” said Jess Sternberg, the owner of Vancouver-based Free Label clothing.
For years, the U.S. government had expressed concern that de minimis shipments were being used to smuggle deadly opioids into the country, because they’re not inspected as closely by U.S. Customs. It first suspended the exemption for shipments from China earlier this year, a policy change that hit big e-sellers like Shein and Temu.
Canada has its own de minimis exemption for goods from the U.S. and Mexico up to $150 for customs duties.
But the end of the U.S. de minimis for the rest of the world, including Canada, will impact mom-and-pop shops “disproportionately,” according to John Boscariol, a trade expert and partner at McCarthy Tetrault in Toronto.
“Many of them who have relied on these low-value shipments to the United States as part of their bread and butter for survival are being hit by this, and possibly may have to go out of business.”
A tale of two Canadian businesses
Canadians can still send letter mail and gifts under $100 US to the U.S. for no extra cost, and companies that meet the Canada-U.S.-Mexico Agreement (CUSMA)’s rules of origin will, in theory, still be able to ship duty-free. To qualify, a product must meet specific criteria, like having at least a certain percentage of it made in North America.
However, even in those cases, small and medium-sized businesses aren’t totally off the hook, said Boscariol, pointing to extra administrative costs for customs clearance — like brokerage fees for companies that have to prove their shipments are compliant.
Sternberg is concerned about those costs. Her business, which specializes in size-inclusive slow fashion for women, makes its clothing in Canada from a mix of domestic and imported materials.
However, her Canadian sales have actually dwindled over the last year, which she attributes to economic uncertainty. Meanwhile, her U.S. customer base is growing, making up nearly 45 per cent of all sales since the beginning of this year.
“Not only is that where the growth potential is, that’s kind of where the potential for us to maintain is, which is important right now for small businesses, because it’s been a hard few years,” she said.
With the recent changes, there’s “definitely a chance” that the business won’t survive this period, Sternberg said.
“We’re going to move forward with just focusing on our Canadian customers and our international customers, and we hope that things change and we can ship to the States in the future.”
Meanwhile, another Canadian small business says it will absorb the cost of the added duties — because a surge of sales from the Buy Canadian movement has given it the wiggle room to do so.
“We’ve made the decision to eat the cost, which is — it’s big, it’s huge,” said Jenn Harper, the founder of Cheekbone Beauty Cosmetics, an Indigenous-owned clean cosmetics company based in St. Catharines, Ont.
About 30 to 35 per cent of its sales are from the U.S., according to Harper. But the company saw a surge in Canadian orders at the top of the year in response to Trump’s trade escalation and threats of annexation.
The extra costs amount to a 25 to 30 per cent increase in shipment fees, Harper says, and the company may not be able to sustain absorbing them long term.
“We’re doing this on a temporary basis to see how much it actually is going to impact our bottom line,” she said. “But we’ve made that decision because we don’t want to scare any of our U.S. customers away.”
‘Double-edged sword’
The de minimis program is a “double-edged sword” for the small businesses that will be hurt by its loss, according to Bob Kirke, executive director of the Canadian Apparel Federation.
“On the one hand, it allowed lots of smaller companies to ramp up sales, direct to consumer, into the United States. No paperwork, no duties. It’s fantastic,” he said.
“But it’s gone. And we’re left with a lot of companies that should know those rules of origin better, but they haven’t had to for a few years. And so that’s going to be the adjustment.”
Parcels worth less than $800 weren’t subject to U.S. duties under a longstanding trade policy, known as the de minimis exemption. But President Donald Trump signed an executive order stating that as of Aug. 29, it would be eliminated, leaving many businesses figuring out how to navigate the change.
Some shipping companies told CBC News how they’ll adjust to the end of de minimis. FedEx is still accepting U.S.-bound shipments, while Canada Post says it’s working with a third party to collect and remit duties to U.S. Customs.
Shipping firm Chit Chats, however, will only accept U.S.-bound packages that have duties paid. And e-commerce companies Etsy and Ebay say they won’t accept shipping label purchases from Canada Post for packages going to the U.S.
Kirke acknowledged that some small businesses could shut down as the exemption ends. The other challenge, he added, is that Canadian entrepreneurs won’t be able to innovate as much without easy access to the U.S. market.
“It’ll cap some of that innovation, some of that growth, and that’s the lifeblood [of the] industry. So that’s the challenge,” he said.
“It has taken away a really valuable tool for emerging companies.”