De minimis exemption death watch puts small businesses on edge

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This article was published 20/02/2025 (254 days ago), so information in it may no longer be current.

For now, Sanjay Agarwal has stopped advertising in the United States.

Photos showcasing Everlayer blankets and towels previously popped up on Americans’ social media feeds. Most of the Winnipeg-based company’s sales — roughly 70 per cent — come south of the border.

But a widely-used trade rule is in question. And already, Everlayer has felt supply chain disruptions from American policy changes.

“If I don’t have clarity, if I’m not able to deliver the product to my customer in three days’ time, then I don’t want to … have a bad experience for the consumer,” said Agarwal, Everlayer’s founder, as he reflected on pausing advertising.

Agarwal is watching the de minimis exemption, a rule allowing duty-free imports at or under US$800 into the United States.

Everlayer, and many small businesses like it, export goods to the U.S. under the de minimis exemption. U.S. President Donald Trump has threatened to remove the exemption, alongside adding sweeping 25 per cent tariffs on Canadian imports.

Trump ended the exemption for China earlier this month. However, administration put the order on hold after more than one million packages piled up at New York’s John F. Kennedy International Airport, Reuters reported, adding the White House intends to reinstate the ban later.

“Our goods were not even covered by the change,” Agarwal recalled. “But because they are part of the larger picture … we were kind of caught in the storm.”

Meaning, the parcel Everlayer had shipped to an American customer Feb. 4 was supposed to arrive in roughly three days. A UPS tracker showed the package was in limbo for more than a week — it was caught in a backlog, Agarwal explained.

He’s among the Manitoban business leaders fretting over an increase in paperwork and costs should the de minimis exemption be removed.

“If it disappears, businesses will have to rethink their entire business model,” said Brianna Solberg, Canadian Federation of Independent Business director of legislative affairs for the Prairies and northern Canada.

Sixteen per cent of the CFIB’s 4,500 Manitoba members export to the United States. Many fall under the de minimis exemption, dodging duties, Solberg relayed.

Lowered trade costs, reduced administrative burdens and increased competitiveness with large multinationals are among the exemption’s perks, she added. The rule was addressed during the creation of the Canada-United States-Mexico Agreement — a deal Trump negotiated.

“It’s like we’re going backwards on good progress,” Solberg said. “It will come at a cost.”

She forecast increased prices for buyers and decreased competitiveness between small businesses and box chains, if the exemption is quashed.

Agarwal is considering opening a U.S. warehouse to hold Everlayer goods. The homeware comes from Europe before circulating through North America.

There’s a cost to importing from Europe, Agarwal noted. He doesn’t want to be hit twice — to import to Canada, then to export to the U.S.

Everlayer may duplicate its warehouse, distribution and “all the costs associated with that” in the United States. It’s a last resort, Agarwal said.

“(That’s) if there’s no other choice,” he continued. “As a small- to mid-sized business, we are not ready to duplicate that cost.”

“If it disappears, businesses will have to rethink their entire business model.”–Brianna Solberg

Everlayer launched nine months ago; it has five staff. Its growth has been an inclining arrow, Agarwal explained, adding its ability to scale will depend on the de minimis rule.

Axing the exemption would likely lead to headaches for the exporter, government agencies and consumers, said Barry Prentice, a University of Manitoba supply chain management professor.

For example, the exporter may need to declare the parcel’s value, the authority would check the tax and apply it, and the consumer would pay the extra fee, Prentice predicted.

“(For) the amount of duty they collect on packages under $800 … I don’t think this is a paying proposition for (the U.S.),” he said. “All of this would slow things down.”

It’s unclear how sellers on websites like eBay would be affected, and what — if any — retaliation would come from Ottawa, Prentice noted: “There’s going to be all kinds of ramifications.”

More than 1,800 Manitoba businesses export to the United States. It’s reasonable to assume a “significant number” have used the exemption, said André Brin, chief executive of World Trade Centre Winnipeg.

“Businesses need to continue monitoring policy changes or decisions that come over the coming weeks,” Brin wrote in a statement. “The uncertainty is difficult for any business in Manitoba doing business in the U.S.”

The owner of Into the Music, a Winnipeg record shop, is among those questioning how potential tariffs and an exemption cut might affect business. Less than one per cent of the store’s goods travel south of the border; still, Greg Tonn is clocking U.S. announcements.

“We just don’t know yet,” said Tonn. “I’m really happy that among most people we talk with, it’s kind of like during COVID — buy local, support your local dealers.

“We’ll see how long that sentiment lasts if prices start going up again.”

Trump said he’d pause a decision on sweeping 25 per cent tariffs until at least March. He’s since authorized 25 per cent tariffs on all imported steel and aluminum, to begin March 12.

gabrielle.piche@winnipegfreepress.com