The US has pulled the plug on a long-running global tariff exemption that has been widely used by buyers of low-cost goods.

From Friday, imports valued at $800 (£592) or less will no longer be duty-free and will face tighter customs checks, in a move set to affect millions of shipments a day.

Last year, almost 1.4 billion packages – worth a total of more than $64bn – entered America without being charged duties under a rule called the de minimis exemption, according to US Customs.

Experts say US President Donald Trump’s policy change will hit small businesses hardest and shoppers should brace for higher prices and fewer options – at least until the dust settles.

“I’ve reached the point of acceptance, but when I first heard the news about two and half, three weeks ago, I felt like it might be the end for my business,” said Katherine Theobalds, founder and creative director of Buenos Aires-based shoe brand Zou Xou. “It still might – that remains to be seen.”

De minimis is a Latin term that broadly translates to “about the smallest things”, often used in legal contexts to describe matters too trivial to merit concern.

The de minimis exemption was introduced in 1938 to avoid the expense of collecting only small amounts of import duties in the US.

The rule’s threshold rose over the years, allowing e-commerce firms and global retailers that ship small packages to the US to thrive.

The exemption was often associated with companies like Chinese e-commerce giants Shein and Temu, which delivered Americans cheap goods that could be quickly shipped from the manufacturing source – with no warehouse stock or associated overhead costs.

But while Shein and Temu helped pioneer this way of working, many other businesses – foreign and domestic, large and small – came to incorporate the “loophole” into their supply chains and sales models.

Executives at Tapestry – the parent company of US fashion brand Coach, which is known for leather bags that sell from roughly $200 to $1,000 – told analysts this month that it expects to take a $160m hit to its profits due to changing tariff policies, with about a third of that attributed to the elimination of the de minimis rule.

Coach has rapidly expanded in recent years in a comeback campaign fuelled by Gen Z shoppers and Tapestry remains confident the momentum will offset some of the impact of tariffs. Still, the elimination of de minimis represents a logistical challenge.

Shipments under the exemption made up more than 90% of all the cargo entering the country, according to US customs.

The president and his predecessor, Joe Biden, criticised the policy as harmful to US businesses and said it has been abused to smuggle illegal goods, including drugs like fentanyl.

In a phone call with reporters on Thursday, Trump’s trade adviser, Peter Navarro, said the move will “save thousands of American lives by restricting the flow of narcotics” through the mail, as well as add $10bn a year to US coffers.

Trump fast-tracked the rule’s repeal with an executive order this year, well ahead of a planned 2027 expiry date.

With the necessary documentation, shippers will pay duties based on the country of origin’s tariff rate. Otherwise, they can choose to pay a fixed fee between $80 and $200 per package, according to the White House.

The second option, which is aimed to give postal services more time to adjust to the change, will only be available for six months.

Mainland China and Hong Kong were the first to be cut from the de minimis rule in May, prompting e-commerce giant Temu to halt direct sales to the US.

Letters and personal gifts worth less than $100 will still be duty-free.

US consumers may see less variety of goods in shops and on e-commerce platforms as businesses get to grips with customs documentation, trade experts have told the BBC.

Smaller firms need time to adjust as they have mostly been spared from such paperwork until now, said Tam Nguyen from logistics administration firm GOL Solution. The company handles exports from South East Asia to the US.

“You need to indicate the source of all the materials in a product, which can come from many countries with different tax rates. This would absolutely make shipments slower.”

The complexity could deter sellers from offering a broader range of products for export, she added.

That could have a particular impact on more niche markets.

Christopher Lundell, is a 53-year-old psychologist based in Portland, Oregon who also DJs and mixes music as a hobby. He is an avid vinyl record collector who recently became aware of the de minimis exemption suspension when he tried to – unsuccessfully – buy a $5 rare record from a seller in the UK.

“He cancelled my order and said, ‘I’m sorry but the UK is not shipping to the United States anymore.'”

Mr Lundell says he tries his best to find US-based record sellers before searching online for overseas sellers based in countries like the UK, Japan and China. He adds that he understands the need to protect US businesses, but says that he believes a blanket suspension of the de minimis exemption is “political theatre”.

Some orders may also be frozen for the next few weeks. Ms Nguyen said clients, including some in the healthcare sector, have halted orders.

Major postal services in the UK, Europe and and the Asia-Pacific region paused deliveries to the US this week.

The operators blamed uncertainty about how the tariffs would work and a lack of time to prepare.

Without the exemption, businesses will have to factor in tariffs the US has imposed on the country of origin, which came into effect for most nations in August.

Those levies can be as low as 10% for countries like the UK and Australia, while goods from Brazil and India face the highest tariffs at 50%.

Following the change, specific duties will be imposed of $80 per item for countries with tariffs of 16% or less, $160 for shipments from countries with between 16% and 25% tariffs or $200 for items from countries with higher tariffs.

A senior administration official downplayed consumer concerns, saying that the move will “benefit” Americans by making them “safer” and “prosperous”.

Some American businesses welcomed the news, arguing the elimination would level the playing field.

“Gap Inc. welcomes the Administration’s decision to suspend duty-free de minimis treatment worldwide. The de minimis loophole has long provided an opportunity for some importers & retailers to avoid paying their fair share of US duties,” the company said in a statement.

Small firms, in particular, will feel the strain from the costly audits needed to clear US customs, making it tough for sellers to keep prices stable, said trade expert Deborah Elms.

With many postal services holding off on US shipments, sellers may have to pay for more expensive express couriers to reach American buyers for now, said Ms Elms from research firm Hinrich Foundation.

British retailer Wool Warehouse is among firms that have paused orders from the US.

“There is a lot of uncertainty at the moment” due to the short time firms have had to figure out shipment process and fees involved, said managing director Andrew Smith.

His firm hopes to resume orders to the US – its largest export market – within two weeks, he said, adding that time is needed to wait to see how other companies have responded to the changes.

Prices of its goods – mostly wool and crafting materials sourced globally – are likely to rise by up to 15%, said Mr Smith.

The company also plans to revamp its website to indicate the tariff rate chargeable for each product, he said.

“We’re aiming for full transparency so people know what it will cost with certainty and then they can decide whether they want to make the purchase or not.”

At Zou Xou, Ms Theobalds specialises in artisan-made women’s shoes, crafted by small workshops in Argentina, that sell for between $200-$300. She began her career in New York, and has focussed her business on American customers.

She has long operated a two-tier system – customers either receive shoes from a US warehouse where she keeps some stock, or shipped direct from Argentina through DHL.

Larger shipments of shoes into the US were already subject to customs fees, she says, but sending one or two pairs from Buenos Aires to a customer was achieved cheaply and efficiently because of the de minimis exemption.

Now, she’s not sure how to factor in the added costs and is exploring several options and hoping to get more clarity on how to shift her business model.

Equally important, she said, is how businesses like hers explain the changes to consumers.

She worries that even if pricing doesn’t change much, a duty process that seems too complicated could turn off even those who want a higher-end product.

“The reason our customers come to us is because they appreciate the artisanal quality. They could have always gone to a mass retailer,” she says. “But what people will have to think about is ‘does that matter to me all that much, or do I just want a pair of shoes?'”

US-based retailers stand to gain if prices of goods ordered from overseas rise, Ms Elms said.

“If it’s too expensive, they’ll probably go to Walmart or Target to buy it there,” she said.

But with so many goods being sent from around world now being subject to customs duties, US consumers may once again turn to China for cheaper options.

Chinese companies like Shein and Temu have set up distribution centres in the US that will help ease some of the cost of tariffs, said Ms Nguyen.

And China is “months ahead” in figuring out the paperwork as compared to firms in other countries that are now scrambling to get up to speed, she added.

There may be fewer competitors in the overall market, as the end of the de minimis exemption makes it harder for small businesses to launch e-commerce sites, said Ms Nguyen.

“It used to be: Set up a site, list products and start shipping. But now that low-cost entry point is gone.”

Additional reporting by Nadine Yousif and Bernd Debusmann Jr

Located in the middle of Mexico, Querétaro is a charming and colourful colonial-style city known for its dazzling stone aqueduct.

But the city, and state of the same name, is also recognised for a very different reason – as Mexico’s data centre capital.

Across the state companies including Microsoft, Amazon Web Services and ODATA own these warehouse-like buildings, full of computer servers.

No one could supply an exact number, but there are scores of them, with more being built.

Ascenty, which claims to be the largest data centre company in Latin America, has two in Querétaro, both around 20,000 sq ft in size, with a third under construction.

It is forecast that more than $10bn (£7.4bn) in data centre-related investment will pour into the state in the next decade.

“The demand for AI is accelerating the construction of data centres at an unprecedented speed,” says Shaolei Ren, associate professor of electrical and computer engineering at the University of California Riverside.

So, what’s the attraction of Querétaro?

“It’s a very strategic region,” explains Arturo Bravo, Mexico country manager at Ascenty.

“Querétaro is right in the middle [of the country], connecting east, west, north and south,” he says.

That means it is relatively close to Mexico City. It is also connected to high-speed data cables, so large amounts of data can be shifted quickly.

Mr Bravo also points out that there is support from the municipality and central government.

“It’s been identified as a technology hub,” he says. “Both provide a lot of good alternatives in terms of permits, regulation and zoning.”

But why are many US companies choosing this state over somewhere closer to home?

“The power grid capacity constraint in the US is pushing tech companies to find available power anywhere they can,” says Shaolei Ren, associate professor of electrical and computer engineering at the University of California Riverside, adding that the cost of land and energy, and business-friendly policies are also attractive.

Data centres host thousands of servers – a specialised type of computer for processing and sending data.

Anyone that’s worked with a computer on their lap will know that they get uncomfortably hot. So to stop data centres melting down, elaborate cooling systems are needed which can use huge amounts of water.

However, not all data centres consume water at the same rate.

Some use water evaporation to dissipate the heat, which works well but is thirsty.

A small data centre using this type of cooling can use around 25.5 million litres of water per year.

Other data centres, like those owned by Ascenty, use a closed-loop system, which circulates water through chillers.

Meanwhile, Microsoft told the BBC it operates three data centres in Querétaro. They use direct outdoor air for cooling approximately 95% of the year, requiring zero water.

It said for the remaining 5% of the year, when ambient temperatures exceed 29.4°C, they use evaporative cooling.

For the fiscal year 2025, its Querétaro sites used 40 million litres of water, it added.

That’s still a lot of water. And if you look at overall consumption at the biggest data centre owners then the numbers are huge.

For example, in its 2025 sustainability report Google stated that its total water consumption increased by 28% to 8.1bn gallons between 2023 to 2024.

The report also said that 72% of the freshwater it used came from sources at “low risk of water depletion or scarcity”.

In addition, data centres also indirectly consume water, as water is needed to produce electricity.

The extra water consumption by data centres is a big problem for some in Querétaro which last year endured the worst drought of a century, impacting crops and water supplies to some communities.

At her home in Querétaro, activist Teresa Roldán tells me residents have asked the authorities for more information and transparency about the data centres and the water they use but says this has not been forthcoming.

“Private industries are being prioritised in these arid zones,” she says. “We hear that there’s going to be 32 data centres but water is what’s needed for the people, not for these industries. They [the municipality] are prioritising giving the water they have to the private industry. Citizens are not receiving the same quality of the water than the water that the industry is receiving.”

Speaking to the BBC in Querétaro, Claudia Romero Herrara, founder of water activist organisation Bajo Tierra Museo del Agua,  wouldn’t comment directly on the data centres due to a lack of information but says she’s concerned about the state’s water issues.

“This is a state that is already facing a crisis that is so complex and doesn’t have enough water for human disposal. The priority should be water for basic means…that’s what we need to guarantee and then maybe think if there are some resources available for any other economic activity. There has been a conflict of interest on public water policy for the last two decades.”

A spokesperson for the government of the state of Querétaro defended their decision saying: “We have always said and reiterated that the water is for citizen consumption, not for the industry. The municipality has zero faculties to water allocation and even less to assign water quality. Nor the state, nor the municipality can water allocate to any industry or the primary sector, that’s a job for the National Water Commission.”

Another concern for those living near data centres is air pollution.

Prof Ren says data centres typically rely on diesel backup generators that release large amounts of harmful pollutants.

“The danger of diesel pollutants from data centres has been well recognised,” he says, pointing to a health assessment of the air quality surrounding local data centres by the Department of Ecology at the state of Washington.

Mr Bravo responded to those concerns by saying: “We operate under the terms and conditions specified by authorities, which, in turn, in my perspective, are the ones taking care of the fact that those conditions are acceptable for the communities around and the health of everybody.”

As for the future, Ascenty is planning more data centres in the region.

“I do see it just kind of progressing and progressing, with a new data centre there every few years,” says Mr Bravo.

“The industry will continue to grow as AI grows. It’s a great future in terms of what is coming.”