Small packages trigger big inflation: 145% tariffs drive retailers away, the "inflation beast" is about to sweep the United States again

According to the Zhitong Finance APP, with the official cancellation of the tariff exemption for low-priced small packages on Friday local time in the United States, some global e-commerce retailers have stopped shipping and selling any products to customers in the U.S. market. Other retailers are hoping for the early resumption of China-U.S. trade negotiations to significantly reduce tariff rates between the two countries, temporarily seeking alternative solutions through price increases and other means.

More importantly, for American consumers facing years of persistent inflation and tight budgets, the "inflation beast" may return as essential goods retailers and popular apparel retailers gradually withdraw from the U.S., leading to further escalation of the severe cost-of-living pressures they face, which could ultimately result in a collapse of the U.S. labor market and a recession in the U.S. economy.

Products from China, the largest trading partner for daily necessities and essential consumer goods, generally face tariffs as high as 145%, and the U.S. tariff exemption for low-value goods from China ended on Friday. Some online retailers, especially those focusing on daily necessities, essential consumer goods, and popular apparel products, have stopped providing services to the U.S. market due to tariff issues.

Goldman Sachs, a major Wall Street firm, recently raised its core PCE inflation forecast for the end of 2025 by 0.5 percentage points to 3.5%, and it expects a very high likelihood of it rising to 4%, emphasizing that even by 2026, the core PCE is unlikely to return to the Federal Reserve's targeted 2%. In March of this year, the core PCE index showed a year-on-year increase of 2.6%. The core PCE is a long-favored inflation measure by Federal Reserve Chairman Jerome Powell and other Fed officials.

According to the latest tracking and statistical data compiled by the media based on e-commerce platforms like Amazon, the number of retailers choosing to abandon the U.S. market has been increasing since the Trump administration began taxing small packages.

The latest financial report released by the world's largest e-commerce giant, Amazon (AMZN.US), on Friday showed that due to the various products on the Amazon platform, especially essential consumer goods mainly sourced from China, Amazon's management mentioned for the first time in its performance outlook that tariffs and trade could have a significant negative impact on performance, leading to a business profit outlook that fell far short of Wall Street analysts' expectations. The entire operating profit guidance range is below analysts' expectations, with the high end of the guidance range about 1.8% lower than analysts' expectations, and the low end even 27% lower than analysts' expectations.

After the cancellation of the "de minimis" tariff exemption policy for e-commerce packages under $800, goods from the Chinese market will face up to 145% in general tariffs—this decision was announced by U.S. President Donald Trump last month, and this trade policy has disrupted global trade and triggered retaliatory tariffs or potential retaliatory measures from trade partners such as China and the European Union.

It is understood that the British beauty retailer Space NK, which has seen explosive sales of its own care products on the Amazon e-commerce platform, announced on Wednesday local time that to avoid errors or additional huge costs for customer orders, the company has suspended e-commerce orders and deliveries to the U.S. market Space NK is not an isolated case. The brand Understance, headquartered in Vancouver, Canada, which manufactures and produces lingerie and other apparel in China, informed customers on the social media platform Instagram that it will no longer ship to the United States due to tariff reasons, and will resume shipping once the situation becomes clearer.

“Tariffs have skyrocketed from 0% to an unprecedented 145%, which is unbearable for both businesses and consumers.” said Cindy Allen, CEO of global trade consulting firm Trade Force Multiplier, in an interview. “As a result, I see many small and medium-sized daily goods retail businesses simply withdrawing from the U.S. market temporarily.”

Specific import costs may vary depending on the mode of transportation. Guidance from the U.S. Customs and Border Protection indicates that e-commerce packages processed through the U.S. Postal Service will be subject to tariffs equivalent to at least 120% of their value, or at least $100 per item, which will rise to $200 starting in June.

A New Wave of Price Increases in the U.S. is About to Begin

For retail businesses that still wish to enter the U.S. market, they are being forced to significantly raise prices to cope with the unprecedented aggressive trade policy of the Trump administration, which imposes tariffs globally.

Although the Trump administration announced a 90-day delay on some of the most severe "reciprocal tariffs" shortly after "Liberation Day" due to the continued plummet of U.S. stocks, bonds, and currency, during this period, the baseline tariffs for most countries other than China were adjusted to 10%. However, according to Bloomberg's economic research team, the "effective tariff rate" in the U.S. is currently close to 23%—the highest level in over a century. This has severely impacted consumer and business confidence in the U.S.

The Trump administration's decision to impose astonishing tariffs of up to 145% on China (one of the top three trading partners of the U.S.) and at least 10% on most other countries has led many forecasters to warn of a sharp slowdown in the global economy, with some even predicting a deep economic recession in the U.S. this year. This is partly due to the significant downward pressure on household demand in the U.S., which has been facing inflationary pressures since the high inflation period of 2022, with some households' savings being quite limited, and household demand or consumption accounting for about two-thirds of the U.S. GDP.

British clothing retailer Oh Polly has prices in the U.S. market that are 20% higher than in other markets, and may be forced to raise prices further due to higher tariffs, said the company's managing director, Mike Branny, in an interview.

Singapore-based fast fashion giant Shein posted on its U.S. market Instagram account on Thursday to reassure consumers: “Some product prices may vary, but most of our collections remain as affordable as ever.” It is understood that Shein's clothing products are primarily produced in China, with the U.S. being its largest market.

The inventory imported in bulk by e-commerce platforms like Amazon and Shein before the small package tariff takes effect on May 2 will eventually run out. Merchants on platforms like Shein and Amazon have even significantly reduced their digital advertising spending in the U.S. in recent weeks, preparing for the potential sales hit from this trade policy change According to reports, Snapchat developer Snap Inc (SNAP.US), which focuses on the "self-destructing" instant privacy theme, recently stated that its online advertising business is facing rare macroeconomic "headwinds" due to Trump's tariff policies, and management refused to provide revenue forecast data for the current quarter in its earnings report. The company's Chief Financial Officer Derek Anderson stated during this week's investor earnings conference call that due to the Trump administration's plan to amend the "de minimis" tariff exemption rules—currently exempting tariffs on any Chinese imports valued under $800—some advertisers are significantly tightening their advertising spending.

The so-called "de minimis rule"—which exempts e-commerce packages valued under $800 from tariffs—was initially designed to facilitate online shopping for American consumers and promote international trade. However, it has faced severe criticism from many Republicans for allegedly fueling the smuggling of fentanyl precursors and for the massive influx of cheap clothing, toys, and furniture through e-commerce platforms like Shein and Amazon's Haul, which harm the market share of domestic U.S. products.

De minimis has also become a channel for counterfeit goods. In 2024, 97% of the goods seized by U.S. Customs and Border Protection for intellectual property infringement belonged to de minimis goods.

After the exemption is removed, sellers of Chinese-made products must provide U.S. Customs with more detailed information about the origin of each component of their products to determine compliance with the United States-Mexico-Canada Agreement (USMCA). This not only increases the administrative cost burden but also, combined with hefty tariff costs, is deterring small retailers globally. However, the essential consumer goods and popular apparel products offered by these small retailers rank high on the long-term shopping lists of most American consumers, which will inevitably lead to a significant increase in the prices of essential consumer goods, thereby driving up inflation in the U.S.

Carol Tomé, CEO of United Parcel Service (UPS.US), stated on Tuesday that 100% of the goods for many of the company's small and medium-sized retail clients come from China.

Earlier this month, U.S. online auction market Etsy (ETSY.US) stated in a seller notification that it will be easier for sellers to indicate the country of origin for products, as tariffs are assessed based on the manufacturing location rather than the shipping location. For e-commerce businesses, this policy is highly destructive on both demand and supply levels, but it could be a significant benefit for retailers that do not rely on e-commerce or Chinese manufacturing.

British fast-fashion retailer Primark, which only sells through physical stores in popular shopping districts across the U.S. without engaging in online e-commerce sales, may significantly benefit from Trump's tariff policies. The CEO of its parent company, Associated British Foods, George Weston, told the media on Tuesday: "As prices for these types of goods may rise significantly, I wonder if some American consumers will return to shopping malls in search of real value."

The world's largest e-commerce platform Amazon has warned of tariff impacts

Against the backdrop of a new round of global trade war led by the Trump administration, the social media platform Snap, which features a "disappearing messages" app, is just one of many companies warning that operations will become increasingly difficult. Prior to this, several retail leaders including Colgate, Procter & Gamble, Unilever, and Nestlé had warned that tariffs would bring huge costs. Snap's temporary withdrawal of its performance guidance indicates that the negative effects of Trump's tariff policies have already permeated the e-commerce and online advertising sectors, which will undoubtedly lead to significant disruptions in performance expectations for e-commerce and broadly defined social media platforms like Amazon, Facebook's parent company Meta, and Pinterest.

Amazon's financial report released on Friday showed that its revenue growth rate in the first quarter was the slowest since the fourth quarter of 2020, and the growth of earnings per share (EPS) also significantly slowed compared to the previous quarter.

Since various products on the Amazon platform, especially essential consumer goods, mainly come from China, Amazon's management has for the first time directly warned in its performance outlook that the Trump administration's tariff policies and the new round of global trade battles could have a significant negative impact on the e-commerce giant's performance. As a result, the operating profit outlook provided by Amazon is far below Wall Street analysts' expectations.

Amazon's performance outlook indicates that the entire operating profit guidance range is below analysts' expectations, with the upper end of the guidance range approximately 1.8% lower than analysts' expectations, and the lower end even 27% lower than analysts' expectations. This means that under the worst-case scenario predicted by Amazon's management, which faces the impact of tariff policies, the operating profit for the second quarter could be 27% lower than the average expectations of analysts.

It is worth noting that when announcing the performance outlook guidance, Amazon's management hinted that the guidance provided does not take into account any potential impacts of tariff policies that may be implemented after April. In other words, if the incremental tariff policies implemented by the Trump administration starting in May lead to reduced consumer spending, it could further impact Amazon's performance, and this guidance from Amazon may even be overly optimistic.