Section 321 Fulfillment Changes: What it Means for E-commerce Sellers Importing into The U.S.

President Trump signed executive orders revising Section 321 during the first week of February. The new changes will impact trade between the United States and three of its largest trading partners. If your e-commerce business relies on importing goods from China, Mexico, or Canada to sell in the United States, the regulatory shifts will require you to overhaul your supply chain process.

Trump Tariff Plan: Revisions to Section 321 Entry for U.S. Imports from Canada, China and Mexico  

The executive action, or the Trump Tariffs as it is popularly called, calls for the suspension of the de minims clause under Section 321. These policy amendments would enforce stricter compliance and inspection of undervalued parcels of Section 321 imports entering The United States.

Transactional Implications of Section 321 Policy Revisions ‍

• Removal of the De minimis Loophole: Duty-free admission of goods under the “de minimis” threshold will no longer apply.
• For imports from Canada and Mexico: A 25% Tariff will apply on goods. [As of February 3, The U.S. Government agreed to a 30-day delay in enforcing the change to the U.S customs import fees]
• For imports from China: Goods under US $800 filed under Sections 201, 232, or 301 will remain tariffed. A 10% tariff on all goods from China. U.S. import goods from China were previously taxed at 15% since 2019. [Suspension of the De-minimis loophole has been paused currently]

Operational Changes Due to Section 321 Amendments

• Entry Paperwork: The Trump Tariffs mandate sellers importing goods into the US under Section 321 furnish detailed information. Sellers and importers must include detailed descriptions of the cargo’s contents. For example, generic product information like “Shoes” will no longer be acceptable to describe the content inside the consignment. Sellers must add detailed descriptions, such as “Leather Shoes with Upper.”
• Entry Type: Sellers can no longer choose Type 86 Entry while importing into the U.S. Based on the shipment value, sellers Importing goods into the U.S. can choose between Entry Type 11 (Informal Entry) and Type 1 (Formal Entry ).
• Accurate HS, and HTS Codes: Sellers importing goods into the U.S. must classify the contents of the shipment under the appropriate HTS codes. Misclassifying shipments, especially high-value/high-volume consignments, may result in delays and computational errors that would impact import tax and duties.  

Recap: What was Section 321 and How it Benefitted E-commerce Sellers

To understand the impact of the recent policy amendments, it is important to know how Section 321 was integral in allowing sellers to gain access to the U.S. market. The de minims rule allowed American tourists to skip import fees while bringing low-value goods purchased overseas into the U.S. The amount at which imports were duty-free was called the de-minimis threshold.

Eventually, businesses used the de minimis shipping provision to import goods under the threshold limit and sell them without attracting any duty fee. In 2016, the U.S. Congress increased the de minimis value from $200 to $800, and since then, sellers who import into the U.S. have taken advantage of the tax benefit of Section 321 entry. 

How Mexico Became China’s Backdoor to the United States through Section 321 Loophole

Over the last decade, the value of shipments under the de minimis threshold entering the U.S. grew from 140 million in 2014 to 1 billion in 2023. But it wasn’t only about businesses exploiting the act; another trend was setting in. In 2023, the value of goods imported into the U.S. from China was $427 billion. This was a $110 Billion decline from 2022. At the same time, the value of goods imported from Mexico to the U.S. rose by $20 billion, to $475 billion, surpassing China. In 2024, U.S. imports from Mexico grew by 5.8% in H1 of 2024. 

The New Tariff Haven for Chinese Imports

While tariffs levied on China increased, manufacturers moved to Mexico to leverage the low tax tariff on Mexican imports. In 2021, the American tariff on Mexican imports was 0.2%, which was much lower than that for China. However, not all sellers could establish a manufacturing presence in Mexico. China’s manufacturing prowess meant sellers could source products in bulk at a lower cost. 

For low-cost products and lower import taxes, e-commerce sellers began importing goods into the U.S. from Mexico through a process called Nearshoring. Goods from China would go to a warehouse facility in Mexico, which is closer to the U.S. than China. The consignment then enters the U.S. mainland into another warehouse through the de-minimis provisions of Section 321. 

How do the revisions to Section 321 Fulfillment impact sellers’ nearshoring inventory in Mexico and Canada

The recent executive action impacts the sellers looking to import into the U.S. through the Section 321 loophole. Previously, sellers could import low-value goods from China into the U.S. through one of the three ways:

Nearshoring at Mexico: China — Mexico — USA

The Previous De-minimis Rule:

Mexico nearshoring involved moving stock from the Chinese manufacturer to Mexico. Once it’s in Mexico, the consignment is split into shipments under $800 and trucked into the U.S. mainland.

How Nearshoring in Mexico Changes After the Executive Orders:

The executive order now suspends the de-minimis provision and imposes an additional 10% tariff as a duty fee to import into the United States. For sellers outside the U.S. who ship into the country, the Section 321 loophole was essential to capitalize on savings from low-cost consumer products and a tax advantage.

Let’s assume how the closure of Section 321 will affect the cost of a product worth $100 USD

321 FULFILLMENT VIA MEXICO NEARSHORING
Import and Duty fee	VAT (IVA): 16% (exemptions apply).Customs Fees: 5% tax deferment, $25 inspection fee, other charges.Carrier Surcharges: Vary by shipment.
Shipping (CN → MX):	Mexico Duty: 5% ($5);
U.S. Tariff (Chinese origin):	25% + 10%
Customs & Carrier Fees:	$5–$25
Cost after importing from China → Mexico → U.S.	$141–$231

Now, these shipments will face higher scrutiny and added tariffs, which outweigh the margins.

Speaking to the New York Times, Sarah Pitkin, who owns four hardware stores in Virginia, expressed how the new tariffs would impact margins. Ms. Patkin ‘s store imports nearly 40 percent of the goods from China through distributors. With the new revisions, the prices of the power tools, barbecue grills, and electronics that she stocks will rise.

A $129 drill at her store, for example, might cost more than $140. As profit margins tighten, retailers like Patkin will have to revise the prices of their products.

Importing from Canada: China — Canada — USA

Sellers previously also leveraged Canada’s proximity to import goods into the U.S.A favorable U.S. import duty and favorable duty-free limit in Canada meant sellers could import low value at lower taxes. The Trump tariff plan imposes significant changes to Canada’s duty free provision. The executive order now calls for a 25% tariff on imports of goods of Chinese origin shipped from Canada.

Let’s assume how the closure of the Section 321 entry on low-value goods affects the import of Chinese-origin goods into the U.S. Here, we assume that the business is trying to import a product worth $100 and calculate the U.S. import duty.

321 FULFILLMENT TO THE UNITED STATES FROM CANADA
Taxes and Duties For Goods Entering Canada	5% GST & potential duties based on value & origin.Exemptions: Goods ≤CAN$20, gifts ≤CAN$60.Additional taxes: Excise duties on luxury goods.Certain provinces apply 13% HST instead of GST.
Shipping from China to Canada	Shipping (CN → CAN): $10–$50
Import Tax & Duty:	$5–$15;
Shipping from CAN to the U.S.	$10–$30;
U.S. Tariff (Chinese origin)	15% + 10%;
Customs & Carrier Fees:	$5–$25.
Cost after importing from China → Canada→ U.S.	$125–$195

Similar to 321 fulfillment from Mexico, sellers opting for 321 fulfillment from Canada will now face higher U.S. import duty, outweighing the gains they are set to make from the low manufacturing costs of the Chinese goods.

Importing into the United States from the Rest of the World:

Sellers relying on sourcing goods for imports from other regions can still leverage the benefits of the de-minimis rule. While goods from China entering the U.S. attract higher tariffs when arriving from Mexico and Canada, sellers can opt for entry from other regions closer to the United States to offset the cost.

The response to a KPMG survey reveals that nearly 57% are taking steps to move production out of China, and 63% acknowledge that the revision to U.S. import duty on goods of Chinese origin will negatively impact their business.

E-commerce sellers can continue importing goods of non-Chinese origins by leveraging the benefits of existing de-minimis policies. The recent amendments to the policy do not impact imports coming into the United States from regions outside Mexico and Canada.

Understanding  Entry Type Options for Crossborder E-commerce Sellers

B2C Sellers [Entry Type 11 + Express Cargo Clearance]: For Sellers engaging in cross-border e-commerce, opting for Entry Type 11 will prove beneficial. Entry Type 11, also called the Informal entry for importing into the US, lets importers declare the manufactured cost (rather than the retail price) as the dutiable value. 

By doing so, sellers reduce the tariff on the consignment as the manufactured costs [COGS] are often lower than the retail price. With the Type 11 entry, sellers have a higher chance of reducing the impact of tariffs on goods they wish to import.

B2B sellers with larger imports: This is applicable for sellers importing goods valued less than $2500 into the U.S. Sellers looking to import can use Entry Type 11. The Informal Entry lets sellers import goods from China, Mexico, and Canada. While revised changes to the U.S. import duties apply, sellers can opt to declare the manufacturing costs instead of the retail value, lowering the tariff. With Localized fulfillment through scalable warehousing infrastructure, sellers can offset fixed utility costs and fulfill orders at better margins.

Readjusting existing supply chain practices for e-commerce sellers

With amendments to Section 321, sellers need to adjust their sourcing strategy to offset the impact of high tariffs on revenue gains. With the U.S. Government relaxing the timeline for implementation, retailers are scrambling to import inventory into the country while time remains. Although this is an anticipated response to the cool-off period, brands must prepare for the eventuality.

The focus for sellers will now shift to aligning their supply chain and inventory sourcing practices towards:

Manufacturers from other countries: While the tariff impacts goods from China the heaviest, sellers in the United States can opt to source from countries in Southeast Asia, such as the Philippines, Indonesia, Thailand, and Middle Eastern countries. This will help sellers opt to source from countries that have favorable trading agreements with the U.S.

KPMG’s Report on Geopolitics and Global Trade reveals that, in 2024, both Mexico and ASEAN continue to gain from the US trade shift away from China. Both economies gained a share of US trade faster in 2024 than they had on average between 2017 and 2023. This shift reflects a shift in the United States’ sourcing patterns.

Exporting and Selling Sourced Goods Outside the US: For cross-border e-commerce U.S-based sellers sourcing products from China, Mexico, or Canada and selling outside the U.S., duty paid while importing can no longer be claimed during export. The manufacturing costs become higher, making the strategy unviable. 

Optimize existing operations: New tariffs on Section 321 resonate with the country’s stance on localization.  Businesses relying on importing and selling Chinese-origin goods can partner with 3PL and e-commerce fulfillment providers with a presence in the United States. With experience in cross-border e-commerce, sellers can seek counsel on how to best minimize import tariffs and offset costly overheads associated with inventory storage and last-mile fulfillment. 

Navigate the impact of Section 321 Changes Confidently with Locad

Policy updates like the recent amendments to section 321 could rewire the supply chain operations for many businesses. With the right logistics and fulfillment partner by your side, you can confidently move inventory into the U.S. mainland and cater to demand. Here’s how partnering with Locad can help your business adapt and deliver instead of suspending operations and going back to the drawing board:

Reshore inventory instead of Nearshoring: Section 321 changes make it clear that the U.S. seeks to close the De Minimis Loophole. Instead of nearshoring inventory, you need to take steps in moving inventory into domestic warehouses to meet local demand. With Locad’s network presence in the United States, choose to store your inventory across the East Coast, West Coast, and Central U.S. This gives you nationwide coverage and the ability to fulfill orders within 1-2 days.

Turn Last-mile Delivery Affordable: With Locad, you access leading carrier partners with expertise in shipping orders across the United States. Partnering with Locad lets you access great shipping costs, making last-mile delivery affordable. You can also activate the cheapest carrier option to automatically map the carrier that offers low-cost shipping for an order.  

Connect, Sync, Automate, and Sell with Locad: Selling on Shopify or Amazon or straight from your custom website? With Locad, you can choose to sell across all through Locad’s multi-channel selling provision. Locad’s Logistic Engine lets you connect your online store to automate order processing. Every time your online store receives an order, it flows into Locad’s dashboard and proceeds for pick, pack, and last mile fulfillment. If you are relying on Enterprise Resource Planning software, Locad offers its API to integrate with the existing software and gain a unified view of inventory, orders, and fulfillment status.

Build to Accelerate Your Growth: While the tariffs imposed on U.S. imports are eating into your margins, don’t let the hassle of managing in-house warehousing weigh your business down. With Locad, get access to a network of localized warehouses in the United States. Pay for the CBM storage and Value Added Services you need at the time of inbounding and offset utility, labor, and maintenance costs. As you fulfill more orders and business picks up, scale your storage requirements and cater to the increased demand effortlessly.  

Build Your Brand To Go Global: Exporting inventory previously imported into the United States from countries like China, Mexico, and Canada is set to become costly. If you are looking to take your brand Global, Locad’s regional presence in China, the Middle East, Southeast Asia, and Australia can be your winning bet. Source inventory from China and store it in Locad’s international warehouse presence. Locad’s IoR and SoR trade services help you navigate foreign customs policy and prepare you for cost-effective market entry. With a localized storage and fulfillment network, cater to consumer demand while competing with local sellers.