President Trump’s new “Tariff Board” has already triggered confusion and legal battles, but, as Julian Wheeler, US Equity Specialist & Partner at Shard Capital, highlights, the quiet removal of the U.S. De Minimis tax exemption could prove to be the most disruptive shift, reshaping e-commerce, retail strategies, and investor sentiment.
On April 2nd 2025, President Trump unveiled his ‘Tariff Board’, one of the most extraordinary back-of-a-cigarette-packet pieces of policy ever produced. Naturally, it has been subjected to multiple changes, delays and outright legal challenges, so it is natural that markets have struggled to ascertain the true impact, lurching between dismay and nonchalance. However, there is one measure which has received far less attention until it came into force last month which could have a far greater impact than appreciated on certain sectors of the US economy.
The end of the De Minimis exemption
The end of the De Minimis tax exemption in the USA, which previously allowed goods into the country duty free if their value was $800 or less, has arrived. In the UK, we still have it in place, although under review, at a much lower £135 threshold. This exemption allowed a global trade in e-commerce to thrive as goods from all over the world could be purchased by, and then sent to, individual US customers.
Chinese retail giants Shein and Temu clearly benefitted from this and are possibly whom the removal of this exemption was squarely aimed toward. It has been estimated that over 90% of all packages destined for the USA are valued under this exemption threshold.
Ripple effects across industries
The list of affected companies is likely to be a long one – for example, logistics companies such as Fedex and UPS as well as many other areas of the transport sector including freight forwarders, packaging, warehouses and depots. But the first big casualty was unexpected and came only a month into this change: Lululemon.
Lululemon’s struggles
The Canadian athleisure business produced earnings that were respectable, but gave guidance that was rather shabby. Lululemon, along with its share price, has been in trouble for a while thanks to a high-priced product range that has become, as they themselves describe, a “predictable offering” combined with competition from multiple new entrants in the same way that Nike has seen in recent years.
However, whilst Nike has changed management and direction, Lululemon appears intent on continuing with their current strategy of expanding away from their core strengths in “performance” clothing in favour of moving downmarket to appeal to a wider audience in casual wear. This might well continue to pressure margins with lower prices and alienate their core customer base, mirroring similar errors made by Gap over a decade ago when they moved away from their core product offering and lost their way.
Sales at risk
Setting aside what Lululemon can control, let us turn to the real bombshell from a recent earnings call, which was the revelation that the end of the De Minimis tax exemption was going to affect 66% of their sales to the USA. Effectively, it appears that about $2bn of sales were being sent from Canada in ‘onesy-twosey’ packages and avoiding Duty. With Duty costs now being due, some reports estimate the cost to Lululemon to be around $300m – or about 250 basis points in margin – a charge that is not a one-off, either.
The question now is why the company had not identified this risk and communicated the full extent of it to analysts well in advance considering this has been on the cards for quite some time. When Lululemon’s management was questioned on the call they allegedly claimed to have believed the change was due in 2027…perhaps it is just fortuitous that they have over-shipped and increased unit levels of inventory by 13%.
Other retailers under pressure
Investors will undoubtedly be wondering who else out there thought Trump was just a ‘TACO’? One of the obvious retailers similarly dependent upon an external inflow of goods is Etsy, whose shares tumbled sharply as soon as this new tax came into effect. This may present an opportunity in my opinion, as their platform could benefit from AI related changes to advertising – and they can surely shift the product assortment in favour of domestically sourced goods. Meanwhile, as the tax and tariff changes do indeed come into play, we are likely to see more brands inevitably found to have ‘been swimming naked when the tide goes out.
Written by Julian Wheeler, US Equity Specialist & Partner, Shard Capital
