Since its inauguration on 20th January 2025, the Trump administration in the United States has focussed on cleaning the mess within the federal agencies, deporting illegal immigrants and recalibrating its trade relations with countries like China. In fact, Donald Trump’s return to the helm of power in the US has been marked by several bold moves resulting in the escalation of a trade war with China. In this vein, the US Postal Service has temporarily suspended deliveries of parcel packages from China and Hong Kong.

In a brief statement, the USPS did not specify the reason behind the temporary suspension, however, the agency said that the suspension will not impact letters and ‘flats’ from China and Hong Kong Posts. “Effective Feb. 4, the Postal Service will temporarily suspend only international package acceptance of inbound parcels from China and Hong Kong Posts until further notice. Note the flow of letters and flats from China and Hong Kong will not be impacted,” the statement reads.

Trump going ballistic to disrupt China’s trade hegemony and exploitation of loopholes

The Trump administration has been focussing on addressing the perpetual trade imbalances created by various factors to curb the US trade deficit, keep in check countries like China who are often accused of indulging in unfair trade practices including forced technology transfers (FTTs) to give access to foreign companies to its markets, subsidies on Chinese industries, intellectual property (IP) thefts and exploitation of loopholes in the existing frameworks.

Earlier this month, President Trump imposed a 10% tariff on Chinese goods. The Trump administration accused China of not taking adequate measures to curb the export of precursor chemicals used in the production of fentanyl, a potent synthetic opioid that contributes to tens of thousands of overdose deaths in the US every year. Furthermore, the Trump administration criticised Chinese authorities for allegedly allowing transnational criminal organisations to engage in money laundering activities that back the drug trafficking networks in the country.

In response to this, China imposed retaliatory tariffs on US goods. Beijing said that 15% tariffs will be imposed on US coal and LNG, and an additional 10% tariff will be applied on crude oil, farm equipment and large-displacement cars. China also launched an investigation into the US tech giant Google over alleged anti-trust violations. While these fresh tariffs will adversely impact US, this rather limited retaliation suggests that China might be interested in negotiating its way out with Donald Trump instead of going into a full-fledged trade war with the United States.

However, despite the dragon taking retaliatory measures, President Trump is not very keen to speak to his Chinese counterpart Xi Jinping for negotiations. White House spokeswoman Karoline Leavitt said that Jinping did reach out to Trump to discuss the issue.

Interestingly, as per Capital Economics, a UK-based research firm, China’s retaliatory tariffs apply to goods worth $20 billion, but the US’s tariffs will apply to Chinese goods worth a whopping Rs 450 billion. The ‘Trump tariffs’ came into effect on 4th February.

De minimis clause

Right after imposing the 10% tariffs on Chinese goods, the Trump administration eliminated the de minimis clause. It clause had allowed packages worth less than $800 to enter the US duty-free. China exploited this exemption as a loophole and massive amounts of small value packages, carefully priced below $800 made their way into the USA. Chinse retailers like Shein, Temu used this clause to expand their customer base in the USA as the parcels were essentially ‘duty free’.

With this exemption revoked, even small-valued packages will be subject to tariffs and customs inspections.

Elaborately, the de minimis exemption was a loophole for China since it allowed goods under the value of $800 to enter the US directly without having to pay tariffs and undergo extensive customs checks. The Chinese e-commerce companies were exploiting this provision to ship massive quantities of low-value items directly to customers in the US, bypassing the tariffs which would otherwise be applicable. This not only undercut American retailers but also allowed the Chinese companies a competitive pricing edge in the US market. Besides, this also resulted in revenue reduction for the US from customs duties.

Interestingly, the small packages not only arrived in the USA ‘duty free’, but they were also being delivered by US Postal Service all over the country for a minimal cost, allowing the Chinese retailers to keep the prices low for US customers.

USPS suspension of Chinese parcels ‘trumps’ China’s retail stocks

The Chinese e-commerce sites which built business models around this de minimis exemption are going to be the biggest sufferers of the revocation of this provision and suspension of Chinese package deliveries. Notably, Chinese e-commerce giants like Shein and Temu alone accounted for 30% of the packages shipped to the US each day under the de minimis exemption, as per the US. Moreover, around half of the delivery packages that entered the US through the de minimis exemption were from China.

The US’s crackdown on China has triggered a negative reaction in the Chinese stock market with companies like JD.com suffering slumps in their stock prices by 3.6%. A similar fall was noticed for Alibaba Group as the leading e-commerce company faces challenges in effectively fulfilling international orders following USPS suspension.

Temu’s parent company PDD Holdings suffered massive losses in its US-listed shares. Meanwhile, Hong Kong-listed GOME Retail recorded a fall of nearly 10% on Wednesday in an apparent aftermath of USPS suspension.

As per a Bloomberg report, “The CSI 300 Index erased opening gains within minutes on Wednesday, its first trading session after the Lunar New Year holiday, to fall as much as 0.6%. The Hang Seng China Enterprises Index slumped more than 2%, following a 3.5% jump in the previous session, with e-commerce firms leading losses.”

The negative impact on the stocks of Chinese e-commerce companies reflects the bearish sentiment prevailing about the possible continuation of a downward trajectory for these. There are concerns that Chinese companies like Alibaba, Shein, and Temu among others would adapt to the new and rather grim market realities without the cost benefits of the previous system.

It is expected that these companies would in future consider restructuring their approach towards the US market and diversifying their logistics alongside also increasing warehouses in the US and other nations to mitigate such sudden disruptions.

Notably, throughut his previous stint in office and and campaign, Trump has repeatedly emphasised the need to push China towards a more reciprocal trade relationship. The Trump administration had in 2018  imposed stage three of Section 301 tariffs in September 2018 10 per cent on $200 billion worth of Chinese goods and announced similar steps in the next couple of months as well. Besides, trade and tariffs, President Trump has been displeased with China’s influence in major global forums. In this vein, Trump last month signed the executive order of the USA’s withdrawal from the World Health Organisation citing the disproportionate financial burden of funding WHO compared to China and the increasing Chinese influence in the intergovernmental health agency.

Trump’s trade war with China is not without consequences

President Trump’s overarching goals not only entail economic rebalancing, eliminating provisions that handed undue advantage to Chinese companies but also exert political pressure to make China give concessions in various trade policies alongside making China deter from its unfair trade practices. Trump’s agenda has been to boost shift of manufacturing back to the US or at least divert it to countries more aligned with US interests. In a nutshell, Trump wants to diminish China’s dominance in the global supply chains. These actions, however, would obviously trigger a response from China.

In addition to the 15% retaliatory tariff on US coal and LNG, and an additional 10% tariff will be applied on crude oil, farm equipment and large-displacement cars, Beijing has also announced export restrictions on key minerals including tungsten, antimony, gallium, germanium and indium among others. China is apparently weaponising its dominance in the hosting and mining process of minerals required for items ranging from smartphones and electric vehicle batteries to infrared missiles and ammunition.

While it remains to be seen whether China and the US decide to negotiate or a full-fledged trade war is set to erupt, the recent escalation hints at a shift towards a more fragmented economic scenario where countries would be expected if not forced to pick sides, in a strange resemblance to Cold War era economic dynamics.

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