Changes to Section 321 Loophole and How it Affects Ecommerce Shippers

Section 321 Suspended: Effective February 4, 2025

On February 1, 2025, President Trump signed an executive action that included a clause to suspend the Section 321 customs de minimis entry process, which previously allowed shipments under $800 to enter the US duty-free. This means all ecommerce and cross-border retail shipments—previously benefiting from this exemption—will now be subject to tariffs. These changes will have major ripple effects, the first of which is the impact on global ecommerce brands who will need to quickly change their international fulfillment strategies.

Included in the executive action are a 25% tariff on imports from Canada and Mexico, (which have been delayed as of February 3), and a 10% tariff on imports from China which has gone into effect as of February 4, 2025.

There is a large backlog of packages that Customs is trying to sift through because of these quick changes. More negotiations are planned among the countries affected by these trade negotiations.

The tariffs will remain in effect indefinitely unless the president decides to remove them, and further increases are possible in the coming weeks. The orders also allow for additional tariff hikes if Canada, Mexico, or China retaliate—all three countries have already indicated they plan to respond. This could escalate trade tensions, leading to a cycle of retaliatory measures that may impact global supply chains and ecommerce businesses significantly.

What is Section 321? 

When products are imported into the US the Customs and Border Protection Department (CBP) applies taxes and duties based on the current international trade laws that apply to the shipment type. As stated in Section 321 of the Tariff Act of 1930, CBP is authorized to provide exclude duties and taxes for shipments with goods that aggregate a value lower than $800 US. 

This retail value threshold is called de minimis. Section 321 is commonly applied to shipments coming into the US. The de minimis threshold varies based on the country of import and the country of export—and it is determined by the government of the import country. Currently the Section 321 limit is <$800 USD but it was previously <$200 until 2015. De minimis is not to be confused with tariffs, which can also vary greatly depending on the country of origin. 

Changes to Section 321 and How it Affects Ecommerce Shippers

With the suspension of Section 321 taking effect on February 4, 2025, brands that previously benefited from duty-free imports will now face significant tariffs and taxes on goods sold to US customers.

This sudden change presents an immediate financial challenge, forcing brands to either absorb the increased costs—reducing profit margins—or pass them onto consumers through price adjustments. For many DTC businesses, even small cost increases can disrupt pricing strategies, conversion rates, and overall competitiveness in an already tough market. 

Beyond the financial impact, the logistics and operational complexities of cross-border shipping will increase significantly. All imports, regardless of the value, will now require: 

• Formal customs entries for every shipment
• Additional processing and paperwork, increasing administrative overhead
• Full payment of newly imposed tariffs on all imports
• Significantly longer transit times, creating potential delays for customers
• A decision on who absorbs the costs—either the brand or the end customer

Previously, Section 321 allowed for a streamlined import process, enabling brands to move goods quickly and cost-effectively. Now, with these new barriers in place, brands operating at high volumes will face slower, more complex fulfillment workflows, making cross-border DTC shipping less viable.

To adapt, many businesses will need to explore alternative fulfillment strategies, such as US-based warehousing, to maintain cost efficiency, delivery speed, and a seamless customer experience while avoiding customs bottlenecks and unexpected tariffs. 

What is the 321 Loophole? 

As soon as any new import/export legislation gets passed, some companies find a way to circumnavigate it. Such is the case with Section 321.  

Lower-value shipments need to comply with the de minimis threshold in order to be duty and tax free, but they also need to be imported in a manner that meets the rule. 

The “Section 321 loophole” is when a merchant sends products that are manufactured internationally to Mexico or Canada, stores the products in Mexico or Canada, and then ships them across the US border. Products being trucked across the US-Mexico or US-Canada border are not subject to the same duties and taxes as those shipped in from other countries. 

This loophole exists because of the trade agreements between the US, Mexico and Canada. Most experts agree that the loophole works best when fulfilling in Mexico.  

The benefits of redirecting products through Mexico or Canada are obvious—a shipper won’t pay the same duties and taxes as they would if they shipped to the US directly from a foreign country and fulfilled in the US. Consumers benefit as well—lower fees for the merchant mean lower cost of goods for buyers. 

But there are also many drawbacks to re-routing your supply chain to specifically avoid Section 321 are many. Here are a few:  

• Products take longer to get from manufacturer to fulfillment center, and also from the fulfillment center to the end-customer. 
• More hand-offs along the supply chain leave products more vulnerable to tracking issues, getting lost, mishandled, or otherwise damaged.   
• With more partners in your supply chain your administrative load is much heavier.  

In short it is incredibly cumbersome to fulfill products in Mexico or Canada just to save money on duties and taxes. The costs you spend on shipping alone may negate the attempt to bypass these import fees.  

Options for Ecommerce Brands Using Section 321

With the suspension of Section 321, brands that previously relied on duty-free direct-to-consumer (DTC) shipping from abroad must now rethink their fulfillment strategies to mitigate the impact of new tariffs and logistical challenges.

One option is to shift fulfillment to the US, allowing brands to store inventory closer to customers. While this means paying tariffs upfront, it eliminates the risk of customs delays, ensures faster shipping times, and provides greater control over fulfillment operations. Though this approach requires some logistical adjustments, it offers long-term stability and operational efficiency in a post-321 landscape. 

Some brands may prefer to maintain their existing cross-border fulfillment operations and take a wait-and-see approach. This allows businesses to continue shipping from their current facilities without immediate disruption, with the hope that policies may change or exemptions could be introduced. However, this strategy comes with risks, including longer transit times, customs bottlenecks, and increased shipping costs.

Regardless of which path a brand chooses, staying proactive and flexible in response to evolving trade regulations will be critical to maintaining a seamless DTC operation and minimizing potential disruptions. 

What is the Difference Between Entry Type 11 and Entry Type 86

When importing goods into the US, brands must consider the best customs clearance method to minimize costs and maximize efficiency. Two commonly used entry types are Entry Type 11 (Informal Entry) and Type 86 (Section 321).

• Entry Type 86 allows duty-free clearance for shipments valued under $800 per day per consignee, making it ideal for high-volume, low-value direct-to-consumer (DTC) shipments. However, with the suspension of Section 321 this will no longer be an option.
• Entry Type 11  allows importers to declare the manufactured cost (rather than the retail price) as the dutiable value. This provides an alternative option for importers to reduce tariff expenses; the manufactured cost is almost always lower than the retail value, offering importers a higher chance of goods entering under the de minimis threshold.

Before jumping to change the entry type of your goods, considerations should be made. Using Entry Type 86 allowed for faster customs clearance and required minimal documentation, Type 11 requires more detailed data documentation, such as a commercial invoice with a full value breakdown.

For brands choosing to use Entry Type 11, they may see reduced duty payments, which is especially valuable for businesses with products such as electronics, apparel, and beauty, where retail markups can be significant.

Tags: International