The U.S. economy may be heading into another inflationary period as the Trump administration applies new tariffs to one of the U.S.’s major trading partners, China.
The Federal Reserve Bank of New York reported that U.S. imports from China have decreased significantly more than what official U.S. data accounts for, revealing that tariffs could significantly impact the future of the U.S. economy.
In 2018, imports from China fell from 21.6% of total U.S. imports, compared to 13.4% in 2024, according to U.S. trade data. In nominal value, imports fell from $505 billion to $439 billion.
However, China reports that its exports have massively increased by $91.2 billion, sitting at $524 billion, which is an increase from the decline after the pandemic bubble.
What explains this discrepancy?
The gap in reporting suggests that many U.S. consumers are still purchasing Chinese goods, but through alternative channels that bypass traditional import tracking — such as the de minimis trade exemption.
By leveraging this loophole, consumers are sourcing products at a bargain, keeping Chinese goods prevalent in the U.S. market despite tariff policies.
The de minimis trade exemption allows small-value shipments of $800 or less to enter the U.S. without additional costs and with minimal documentation requirements.
While this trend has been reflected in China’s export statistics, the U.S. import statistics do not fully account for it.
If U.S. trade data underestimates actual imports, it raises concerns about the effectiveness of tariffs in significantly reducing Chinese goods in the U.S. market. Instead of discouraging imports, tariffs may be shifting trade patterns rather than eliminating demand.
According to the U.S. Customs and Border Protection, a direct-to-consumer report shows a surge in shipments from China, increasing from $7 billion in 2018 to nearly $90 billion in 2024.
In September 2024, the Biden administration announced plans to address the “foreign corporate giants who exploit the de minimis exemption,” noting that most shipments using the exemption originate from e-commerce platforms in China.
In January, the Trump administration continued to scrutinize de minimis trade, citing concerns over a “loss of tariff revenues and risks from importing counterfeit products and contraband drugs, e.g., fentanyl.”
Subsequently, on Feb. 1, President Donald Trump claimed he would enforce an additional 10% tariff on U.S. imports from China and pledged to repeal the de minimis exemption, citing the Chinese government’s lack of action in addressing its role in the fentanyl and synthetic opioid trade.
However, Trump paused the implementation in early February. Data shows that China once made up a large portion of U.S. de minimis imports.
The Congressional Research Service estimated that 67.4% of U.S. de minimis imports, valued at roughly $228.3 billion, came from China during the fiscal year 2018 to 2021 — with $149 billion from China’s mainland and $79.3 billion from Hong Kong.
Among the top Chinese e-commerce firms benefiting from the implementations, measured by the 2023 market share, were Alibaba at 46%, JD.com at 27%, and Pinduoduo at 27%. Names like Shein and Temu have been incorporated overseas to change their legal domicile from China to European-based regions.
Short Term Effects
Recent data from the Conference Board’s Consumer Confidence Index indicates a decline in consumer sentiment. In February, the index was reported to be 98, dropping by 7 points, reflecting growing economic uncertainty.
The Present Situation Index, which measures consumer perceptions of current businesses and labor market conditions, has also displayed a steady three-month decline, falling by 3.4 points to 136.5.
Additionally, the Expectations Index, which gauges short-term outlooks on income, business conditions, and employment, plunged by 9.3 points to 72.9, making its sharp drop since June 2024. Historically, when this index falls to 80 or below, it signals an increased likelihood of a recession.
This decline in confidence data has been observed from all age groups, with the most significant impact coming from individuals aged 35-55 years old.
Long Term Effects
Consumers are becoming increasingly pessimistic about income prospects, family finances, and the job market over the next six months. As tariffs are imposed, the main concern is whether businesses will absorb the costs or pass them directly to consumers in the form of higher prices. Trump has repeatedly claimed that tariffs are paid by the producing nation; however, in reality, they function as a tax to U.S. consumers.
As a result, Americans may face higher prices on imported goods, which would reduce purchasing power and create economic strain.
