This proposal could extend delivery times and increase air-transported goods prices by up to 50%.

The duty-free allowance exemption policy will temporarily continue to apply to products from China, Canada, and Mexico, even though U.S. import tariffs on these countries are already in effect. This exemption allows imported goods valued under $800 to be exempt from additional duties. Originally part of former U.S. President Donald Trump’s tariff orders, this policy was scheduled to be terminated.

However, Trump modified the tariff orders for Canada and Mexico, meaning the duty-free import policy will remain until revenue processing and collection systems are fully implemented. Once the Secretary of Commerce informs the President that these conditions are met, the duty-free exemption will end for products from China, Canada, and Mexico.

The duty-free allowance for Chinese imports is about to be canceled, which is expected to significantly reduce the influx of e-commerce cargo to the U.S. via air freight, which had been growing since late 2023. This trend has led to fully loaded planes and persistently high air freight rates. According to the latest report from Freightos, this proposal may extend delivery times and push up air-transported goods prices by as much as 50%.

Judah Levine, head of research at Freightos, wrote: "Temu and Shein have already taken steps to reduce their reliance on duty-free allowances and air cargo. Reports indicate that over a third of Temu's U.S. orders are now fulfilled by sellers with domestic inventory in the U.S."

Despite this, these platforms are adjusting to the forthcoming policy changes by raising prices, pushing sellers to establish U.S.-based inventories, and encouraging the shift of production to Vietnam and other alternative countries to China.

The temporary grace period for the duty-free threshold suspension for Chinese goods is intended to allow U.S. Customs and Border Protection (CBP) time to prepare for the expected surge in formal entry parcels. Simultaneously, it may help reduce e-commerce air cargo imports to a more manageable level.

Updated reports also note that "some e-commerce companies have canceled cargo flights. While air cargo rates between China and the U.S. have not collapsed, Freightos' air index shows rates have fallen below $5 per kilogram for the first time since August of last year, down 7% from the previous week, whereas prices typically rise after the Chinese New Year. This trend could suggest that rates will gradually decline until the duty-free exemption ends and further drop significantly once the policy takes effect."

The termination of the duty-free allowance may mean that over 1 billion e-commerce packages valued under $800 from China will require additional information and duties. Derek Lossing, founder of Cirrus Global Advisors, predicts a dual blow to global air cargo due to the end of the exemption. He said, "We expect a drop of up to 60% in U.S. e-commerce demand from China by the end of the second quarter, forcing carriers to redeploy capacity globally."

According to Rotate's analysis, China-U.S. e-commerce cargo accounts for around 30% of trans-Pacific capacity.

Catherine Chien, Vice President of Digital Marketing at Dimerco Express, stated: "Last year, we saw a post-Chinese New Year increase in air freight rates, and 2024 showed no significant off-season. However, since January 20, with the announcement of e-commerce-related policies by the Trump administration, the market has slowed down, particularly in the U.S. and Europe. This slowdown has led to the cancellation of some e-commerce charter flights, disrupting the supply-demand balance. While e-commerce remains a key driver, we expect a shift from direct B2C models to B2B2C models."

According to the latest data from the International Air Transport Association (IATA), global air cargo demand (measured in cargo tonne kilometers, CTK) grew by 3.2% year-on-year in January 2024, marking the 18th consecutive month of expansion. Available cargo tonne kilometers (ACTK) grew by 6.8%.

"Compared to the double-digit growth in 2024, the growth rate has slowed. Moreover, while rates have fallen from January 2024, they remain higher than January 2024 levels, with a month-on-month drop of 9.9%. The average cargo load factor fell by 1.5 percentage points, highlighting changing market conditions."

Demand on the Asia-North America trade route grew by 6.1%, marking 15 consecutive months of growth. Meanwhile, the Europe-Asia route grew by 3.2%, expanding for 23 consecutive months. The North America-Europe route saw the strongest growth at 9.7%, reflecting active transatlantic trade.

According to the latest weekly report from WorldACD Market Data, air cargo volumes originating in the Asia-Pacific region have rebounded to pre-Chinese New Year levels, with rates gradually recovering and surpassing levels from the same period last year.

"After rebounding 20% from the post-Chinese New Year low in week 7, week 8 (February 17-23) saw the chargeable weight originating in the Asia-Pacific region grow by another 6%, approaching mid-January levels."

Air cargo volumes from Asia to Europe increased by 5% this week, following a 30% rebound last week, with China-to-Europe volumes up by 5%. Demand from Japan to Europe rebounded strongly, growing by 19% week-on-week, approaching this year's peak levels. Cargo volumes from South Korea (+7%), Vietnam (+8%), and Thailand (+18%) also saw week-on-week increases.

Chien from Dimerco added that the shift from B2C to B2B2C models may reduce air cargo demand, while logistics strategy adjustments are increasing sea freight usage.

"Recent conversations with airlines suggest that overall e-commerce demand will not decrease, but the air cargo portion will not see further growth. Airlines may also shift more capacity from China/Hong Kong to Southeast Asia, not only due to e-commerce but also because of the 'China+' strategy. It may still be too early to fully assess the impact of the duty-free exemption policy, as details are still emerging."

Trade tensions are once again in the spotlight. Trump's decision to impose a 25% tariff on Canada and Mexico and an additional 10% tariff on China has sparked retaliatory actions from trade partners. China has announced a 10%-15% tariff on certain U.S. imports starting March 10. Canada is imposing a 25% tariff on about 30 billion Canadian dollars of U.S. imports, and Mexico is also planning retaliatory measures. These actions and counteractions could affect nearly $2 trillion in trade, following Trump's accusation that these countries failed to take sufficient measures to stop the flow of deadly fentanyl into the U.S.

"Even if we see some tariff relief in the future, everyone is worried about a recession, which is something no president wants during their tenure," Bloomberg reported.

In 2024, Mexico became the U.S.'s largest trading partner, with total bilateral trade reaching $840 billion. Canada ranked second at $762 billion, followed by China at $582 billion.

The U.S. trade deficit with China was the highest, at $295 billion, followed by Mexico ($172 billion) and Vietnam ($123 billion).

Trump added: "All of this is happening and will happen soon. There may be some turbulence, but we are not worried; the impact will not be too significant." The retaliatory tariffs against trade partners will take effect on April 2.

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