By Editor,Martha Williams

Copyright dailymail

A loophole that helped Shein and Temu stay afloat amid high tariffs has been abolished, and one fashion brand is already paying the price.

On August 29, the US government eliminated the de minimis exemption, which allowed foreign shipments valued under $800 to clear customs duty and tax-free.

The rule change has taken a Canadian luxury retailer as its first victim.

Ssense cites the removal of the tax as the reason for restructuring its business.

On Friday, Ssense – which was once valued at C$5 billion – received approval from a Canadian court to move forward with the bankruptcy protection.

The fashion company was known for selling products from an array of designers and high-end streetwear companies, such as Acne Studios, Givenchy and Saint Laurent.

Ssense was already on the brink of financial distress because of less consumer spending and rising inflation. Now this rule change has pushed the company over the edge.

It began when Donald Trump signed an executive order in April to raise taxes on low-cost goods, mainly from China.

He then signed a second executive order suspending duty‑free de minimis treatment for low‑value commercial shipments from all countries in late July.

Before the tariff exemption ended in late August, nearly 60 percent of Ssense’s customers were based in the US.

The average order being placed was $534 – comfortably below the de minimis threshold. But since the exemption was lifted, Ssense has seen its US customer base decline to 40 percent of its sales, court papers show.

Ssense has one physical shop – a five-story flagship located in Montreal. The store offers a ‘building within a building’ experience with designer displays, fitting rooms, a reading room, and a café. The brand ships primarily from its distribution facilities, which are also in the city.

Ssense is not the only Canadian brand feeling the heat.

Even companies in better financial positions, such as Canadian athleisure brand Lululemon and online marketplace Etsy, have warned that the end of de minimis could negatively impact their business.

Lululemon earlier this month said in its second-quarter earnings report that Trump’s tariffs would have a ‘significant adverse effect’ on its business because most US orders are prepared in Canada-based distribution centers.

The athleisure brand says it is negotiating with vendors and raising prices, but that this won’t fully outweigh the impact of the tariffs.

Etsy said in its late July earnings report that the end of de minimis could limit its ability to expand as a global marketplace.

The rule previously helped reduce shipping costs and speed up delivery times for low-value goods.

It was particularly helpful for the survival of fast fashion brands Shein and Temu in the US market.

Because these companies’ products are cheap and shipped in low-value parcels, the de minimis exemption allowed them to avoid import duties and fees.

This made it possible for Shein and Temu to keep their pricing extremely low and competitive.

Now that the rule has been lifted, Shein and Temu’s cheap prices will no longer be sustainable.

In fact, Shein and Temu already announced price adjustments back in April in anticipation of the rule change.

Analysts have estimated that prices could rise 20 percent or more for many items, especially the ultra‑cheap ones that were most benefiting from the exemption.

Examples of price spikes have already been caught on their websites.

A Shein bathing suit that cost $4.39 one day was listed at $8.39 the next – a 91 percent increase.

On Temu, a set of patio chairs rose overnight from $61.72 to $70.17. That’s about a 14 percent increase.

‘The elimination of de minimis will certainly lead to added costs for retailers and consumers as well as additional compliance burdens on companies and U.S. Customs and Border Protection,’ Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, told the Wall Street Journal.

Ssense’s group of banks, including Bank of Montreal and JPMorgan Chase, helped the company apply for protection under a Canadian law (similar to the US Chapter 11 bankruptcy) so it can reorganize and try to fix its finances.

The court approved this application, which means Ssense now has legal protection while it works out a plan to restructure its debts and stay in business long-term.

The company owes its banks about $144 million in different types of loans. Ssense got extra financing from both the banks and its founding family to keep operating during this process.

Ssense plans to sell the company and hopes to complete a sale by the end of the year. It is also looking for other investors and offers to refinance its debts.

The founders, including the CEO Rami Atallah, are interested in buying the company themselves.