US Seeks To Slam Shut Shein, Temu Trade Loophole

The de minimis tariff rule, also known as Section 321 of the Tariff Act of 1930, exempts shipments with valuations below US$800 from US customs inspection and taxes.

The cap was originally $200 but it was raised by then-US president Barack Obama to $800 in February 2016. The increase was aimed at supporting local e-commerce firms such as Amazon.

But Shein and Temu have used the amended rule to expand their businesses in the US, especially after the Trump administration imposed an additional 25% tariff on many Chinese goods in 2018.

Last year, Shein was the most downloaded app in the US market's fashion and beauty app segment, registering more than 35 million downloads.

It was followed by Nike with 15.2 million downloads and Poshmark with about 10 million. Also in 2023, Temu was the most downloaded iPhone app in the US with 103 million downloads, according to Appfigures .

In a June 2023 report, the US House Select Committee on the Chinese Communist Party said that Shein and Temu are building empires around the de minimis loophole in US import rules, which has raised scrutiny of their operations.

“US lawmakers called for closing the 'loophole' of the de minimis rule as American e-commerce companies are jealous about the strong growth of their Chinese peers in the US,” Lai Jiaqi, a writer at Guancha, said in an article published on Thursday.“However, many analysts have said that the US government may not want to change the rule now as such a move will fuel inflation.”

However, Cui Lili, a professor at the Shanghai University of Finance and Economics, said the US tightening its de minimis rule may actually benefit Chinese manufacturers by pushing them up the value-added ladder.

”China's cross-border e-commerce platforms that offer products at very low prices will be hurt if the US tightens its $800 de minimis rule,” Cui said.“In the future, they will have to change their strategy from selling low-price items to high-quality ones. This will create new opportunities for many Chinese consumer brands.”

AB Bernstein, a New York-based research and brokerage firm, said the combined market share of Shein, Temu and TikTok Shop in the US will grow to about 5% by the end of this year from 3% a year ago.

The growth of Chinese e-commerce platforms has eaten into the market shares of American players but Amazon still had an e-commerce market share of 37.6% in the US last year, followed by Walmart (6.4%), Apple (3.6%) and eBay (3%), according to Statista.

According to Chinese Customs, China's e-commerce exports grew 19.6% year-on-year to 1.83 trillion yuan (US$257 billion) in 2023. However, the country's total exports increased only 0.6% to 23.77 trillion yuan for the same period.

In the first eight months of this year, China's total exports rose 6% compared to the previous year. E-commerce could have contributed to the growth, but a detailed breakdown has not been made available.

In April this year, Republican Representative Gregory Murphy introduced the End China's De Minimis Abuse Act legislation, which aims to prevent China from evading tariffs on Chinese goods. He said the proposed legislation is critical to supporting small businesses in the US.

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This Act proposed to impose a new civil penalty of $5,000 for the first violation and $10,000 for each subsequent offense for any person who violates US de minimis law instead of merely forfeiture of the shipment.

Citing the latest Customs and Border Protection (CBP) data, Murphy said about 60.8% of all de minimis entries to the US came from China.

Also in April this year, the National Council of Textile Organizations (NCTO) called for an aggressive reform of an“extremely flawed tariff waiver mechanism.” It said not finding a“comprehensive solution” would risk China's continued exploitation of American industries.

A group of bipartisan Senators on August 8 released legislation called Fighting Illicit Goods, Helping Trustworthy Importers and Netting Gains (FIGHTING) for America Act to tighten the de minimis rule.

Senator Sherrod Brown said countries like China are exploiting the de minimis loophole to cheat US trade laws and flood America with packages containing fentanyl and other illicit substances.

Meanwhile, a commentary published by the state-run China Daily in April said the mentality of US politicians is:“if we cannot compete with them, outlaw them.” It said curbing Temu and Shein will hurt Sino-US relations.

Read: Shein, Temu bans next front in US decoupling drive

Follow Jeff Pao on X at
@jeffpao3

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