As consumers who buy apparel, we often consider state sales tax but rarely consider the import taxes brands pay to bring products into the country. One significant catalyst for the recent rise of global fast fashion stems from the de minimis tax rule. This provision allows brands to carry or ship goods into the U.S. under a certain value.
What is the de minimis exactly?
The de minimis represents the lowest value that a shipment can be without being subject to import taxes. The de minimis threshold started in 1938 as a convenient way for tourists to avoid paying taxes on low-cost souvenirs purchased abroad (and save the government from the administrative hassle of having to collect low-value taxes). The initial threshold was $5 for gifts. In 1994, the threshold increased to $200. In 2016, new legislation changed the de minimis tax to $800. There is a new proposal in legislation that, if accepted, will do away with the de minimis and close the loophole that certain brands use to avoid paying taxes on small order shipments.
How did the de minimis shape fast fashion?
As the de minimis threshold has risen over time, larger and larger orders were able to escape taxes. Pair this with more sophisticated global shipping and logistics, and it’s a recipe for a fast fashion frenzy.
Before the 2010s, large brands with goods manufactured abroad would ship production-level volumes as freight on cargo ships to warehouses in the U.S. The shipments themselves were valued at thousands or millions of dollars, all of which would get taxed by the government upon entry to the country. With the latest advances in shipping and logistics, brands can now airfreight individual packages directly from the manufacturer to the consumer through a drop shopping process. Because the individual packages are usually smaller in value, the shipment enters the U.S. duty-free.
Shipping many smaller packages directly to the consumer instead of shipping an entire bulk freight order to a warehouse has allowed many fast fashion brands to circumvent taxes using the de minimis loophole. Fast fashion found a way to get its products to consumers ultra-fast and escape taxes to keep its products ultra-cheap, fueling explosive growth. According to the U.S. Customs and Border Protection, the volume of de minimis shipments entering the U.S. has surged from 134 million in 2015 to 1.4 billion in 2024.
iteration’s take on the de minimis and potential changes to it.
There is a new proposal to change the de minimis back to $0. At iteration, closing the loophole is a welcomed idea as it will help level the playing field. As a start-up, iteration does not have the luxury of working with a larger-scale manufacturer capable of drop-shipping single orders directly to customers. We manage and ship all inventory ourselves in the U.S. and pay FULL tariffs on all our imported freight, which is a HUGE amount (16.9% for our bras) relative to brands that pay nothing by circumventing tariffs through the loophole.
The closure of the de minimis loophole may make our U.S. brand more attractive to potential customers, retailers, and specialty lingerie boutiques, as other brands may need to increase prices to cover the additional duty rates. For more of our thoughts, check out our mention in Vogue Business.
More importantly, the de minimis loophole enables fast fashion giants like Shein and Temu to flourish, making it all too easy for consumers to make impulsive purchases of cheaply made products delivered straight to their doorstep.
As a sustainable brand that believes we must reduce overconsumption, policies that inhibit fast fashion (like closing the de minimis loophole) are a step in the right direction. Anything we can do to encourage mindful consumption and the creation of quality, long-lasting apparel is a good thing. That’s why all of iteration’s bras + undies are made with premium materials and designed purposefully for a long product life. We developed our collection in a slow, co-creative process to ensure the undergarments we make are actually the ones women want. There’s nothing fast or cheap about it.
