Dropshipping businesses are under pressure amid Trump’s tariffs

While recent news of United States President Donald Trump’s on-again off-again tariffs has led to wild swings in markets and shaken businesses globally, companies that rely on open trade between China and the U.S. are among the most susceptible to becoming collateral damage.

Temu and Shein aren’t the only companies that will be disrupted by a trade war between the U.S. and China. Many other small and medium-sized businesses, such as those involved in dropshipping, will also be affected.

“At the moment, we’re seeing about a 33% decrease in revenue,” said Kamil Sattar. The 25-year-old runs a dropshipping business with online stores that sell items such as outerwear, mobile accessories and more.

Dropshipping is a type of e-commerce fulfillment method where sellers process orders by passing them to suppliers, who then ship the products directly to the customers. This often involves buying items sourced from Chinese suppliers or manufacturers and selling to the U.S. or other developed markets. This ultimately eliminates the need for sellers to carry their own inventory.

“You’re able to sell products online, but you don’t have to pay for the stock until a customer comes on your online store and makes a purchase,” said Sattar.

It is a popular business model among side hustlers and entrepreneurs, as it requires little capital and can be built entirely online using platforms like Shopify, along with marketing tools such as paid ads and content creation.

Therefore, the current 145% cumulative tariff on Chinese goods is putting pressure on many dropshipping businesses.

Like many others, Sattar’s dropshipping business sources most of its products from China — about 90%, most of which are for the U.S. market.

In response to the tariffs, Sattar has hiked the prices on some of his products, which continue to be in demand in the U.S.

“We’re not selling to the U.S. as much as we used to… 60% [of our products] used to be sold to the U.S. and now it’s gone down to about 20 to 30%,” Sattar told CNBC Make It. “We’re now slowing down on U.S. consumption, and we’re focusing on the European market.”

Trump’s elimination of the de minimis exemption dealt the biggest blow to the dropshipping industry. This provision has historically benefited dropshippers and e-commerce retailers.

What was once a loophole that allowed shipments valued at $800 or less to enter the U.S. duty-free will end for goods from China and Hong Kong starting May 2nd, according to an official announcement by the White House in April.

In 2024, more than 90% of all packages entering the U.S. arrived via de minimis, or about 4 million shipments daily on average.

However, these goods will now be “subject to a duty rate of either 30% of their value or $25 per item (increasing to $50 per item after June 1, 2025),” according to the statement by the White House.

The de minimis exemption was temporarily suspended in February, leading to major delays in the shipment of goods to the U.S. as more than a million packages piled up at U.S. ports. Days later, President Trump reversed course and delayed the elimination of the rule to May 2.

“It is becoming a lot harder to sell in the U.S., because a lot of products from China are now being stopped at the borders for inspection. So it’s not even just losing more money in terms of profitability. You’re also getting the product stuck,” said Sattar.

“This is the serious part that people don’t realize … If your package is stuck at the border, your customer’s gonna want refunds. We’ve been facing that for a while, so that’s why we don’t want to sell [some of] our Chinese products in the U.S.,” Sattar added. “Profit margins have now been slashed by that.”

In China, the impact of the U.S. tariffs has also created turbulence.

“We can see that our small and medium-sized enterprises have been severely hurt in the cross-border e-commerce sector, especially some general merchandise or low value-added products, which are now facing great difficulties in exporting,” Xin Wang, head of the Shenzhen Cross Border E-commerce Association, told CNBC’s Emily Tan on “The China Connection” on Thursday, according to a CNBC translation of her Mandarin-language response.

“We conducted some surveys on about 228 companies, and we found that very few of these companies are currently optimistic; everyone is very pessimistic,” said Wang. “60 to 70% of the companies are taking a wait-and-see attitude, while some companies are actively developing markets in other countries.”

Meanwhile, for newly shipped goods, added fees from the tariffs will be passed onto American consumers, added Wang.

Industry insiders agree that having a diverse set of markets to supply from and sell to is crucial in navigating the current trade environment.

“I would say, especially if anyone is shipping from China to U.S. … and out of all of them, the small packages — ones like the Shein or the Temu kind of business model, [will get] impacted the most, probably to the degree that they just can’t even run their business anymore,” said Julia Xu, co-founder & CEO of Wayo. 

“You’re going to see a big nose dive of all these Amazon [and] Shopify sellers … a lot of those micro entrepreneurs with just one single source of supply, one single source of customer, are going to be in deep trouble,” said Yinglan Tan, founding managing partner at Insignia Ventures Partners.

Dropshippers that diversify beyond the U.S. and China will be able to survive, Sattar added.

“At the moment, it’s very hard to make a real plan until things settle down, [because] things change every single day,” said Sattar. “Those that stick around and are smart will make the most money because they’ll see the hidden opportunities … and those opportunities — they don’t come very often.”

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