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The current tariff rate imposed by the United States on Chinese goods has reached a striking 145%, as reported by officials at The White House.
Recent fluctuations in U.S. trade policy, particularly regarding tariffs under President Donald Trump, have led to significant volatility in markets, disrupting global business operations. Companies engaged in trade between the U.S. and China find themselves particularly vulnerable amid these ongoing changes.
While players like Temu and Shein face challenges, they are not alone in this. A large number of small and medium-sized enterprises, including those utilizing dropshipping frameworks, are also bracing for impact.
“Currently, we’re seeing about a 33% decline in revenue,” shared Kamil Sattar, a 25-year-old entrepreneur managing a dropshipping operation specializing in items ranging from outerwear to mobile accessories.
Dropshipping is defined as an e-commerce fulfillment model where sellers process sales orders through suppliers who ship products directly to the consumers. This method predominantly relies on goods sourced from Chinese manufacturers, allowing sellers to avoid holding their own inventory.
“The beauty of dropshipping is that you can sell products online without paying for stock until a customer completes a purchase,” Sattar explained.
This business model has gained popularity among aspiring entrepreneurs and side hustlers because it demands minimal upfront investment and can be managed entirely online, often using platforms like Shopify, along with digital marketing tools such as paid advertising and content creation.
However, the situation is deteriorating, as an increasing number of products from China are being halted at U.S. borders for inspections. The consequences extend beyond mere profit loss to inventory that gets caught up in the system.
Kamil Sattar
“Right now, it’s becoming increasingly challenging to sell in the U.S., because many products from China are getting detained at borders for scrutiny. It’s a struggle that affects our profitability and causes more delays in fulfilling customer orders,” Sattar remarked.
Challenges Facing Dropshipping
Sattar’s dropshipping business heavily relies on Chinese products, with about 90% of his inventory sourced from that region and geared toward the U.S. market.
In light of escalating tariffs, he has had to raise prices on select items that still maintain demand in the U.S.
“Our sales to the U.S. have significantly dropped from 60% to about 20-30% of our total sales,” Sattar disclosed during an interview with CNBC Make It. “We are now redirecting our focus towards European markets.”
Consumer confidence plays a critical role, and low levels are anticipated to adversely affect sales within the U.S. dropshipping sector, according to Sattar.
End of the De Minimis Exemption
The termination of the de minimis exemption has emerged as a crippling blow for the dropshipping sector. This exemption historically allowed for duty-free entry of shipments valued at $800 or less into the U.S., a benefit that will cease for goods from China and Hong Kong effective May 2nd, according to an official White House announcement.
In 2024, over 90% of all packages reaching U.S. shores traversed under the de minimis exemption, averaging approximately 4 million shipments daily.
With the new policy, these shipments will now incur a duty rate of either 30% of their value or $25 per item (with an increase to $50 per item after June 1, 2025), as detailed in a press statement.
“Expect a significant downturn for many Amazon and Shopify sellers. Numerous micro-entrepreneurs, often reliant on singular suppliers and customers, will find themselves in precarious positions,” cautioned Yinglan Tan, managing partner at Insignia Ventures Partners.
The sudden suspension of the de minimis exemption in February led to major delays at U.S. ports, resulting in a backlog of over a million packages. Shortly thereafter, President Trump deferred the elimination of this rule until May 2.
“It is extremely difficult to conduct sales in the U.S. at this point since many products from China are getting detained. This goes beyond profitability; delayed shipments also lead to a slew of customer refund requests when products get stuck,” Sattar noted. “Our profit margins have been severely impacted as a result.”
The effects of U.S. tariffs are resonating in China as well. “Small and medium-sized enterprises, particularly those engaged in low-value general merchandise, are facing significant difficulties in navigating their export operations,” stated Xin Wang of the Shenzhen Cross Border E-commerce Association, reflecting on industry sentiment during an interview with CNBC.
“Our surveys indicated that the outlook is grim; a staggering 60-70% of the companies we engaged are adopting a wait-and-see approach, while others are exploring alternative markets abroad,” Wang elaborated.
Wang also mentioned that consumers in the U.S. will ultimately bear the costs of tariffs as they will be passed down on newly shipped goods.
The Future of Dropshipping
Experts agree that diversifying sources and markets is vital for sustaining operations in the current trading climate.
“For anyone looking to ship goods from China to the U.S., the small package model—which companies like Shein and Temu utilize—will face substantial operational hurdles, with many unable to sustain their business,” indicated Julia Xu, co-founder and CEO of Wayo.
Yinglan Tan further asserted, “There will be a noticeable decline in the performance of Amazon and Shopify sellers, particularly those micro-entrepreneurs relying on a single supplier and customer.”
According to Sattar, dropshippers who expand their horizons beyond the confines of the U.S. and China could still thrive.
“It’s currently challenging to chart a clear path forward until the dynamics stabilize. The environment shifts almost daily,” he explained. “Those who are adaptable and perceptive may identify new opportunities, even when they are rare.”
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