In a bold attempt to address trade imbalances and bolster domestic competitiveness, the United States has introduced a set of proposed regulations that would impose new taxes on low-value imports from China, specifically targeting major e-commerce platforms such as Shein and Temu. These two companies, which have rapidly expanded their presence in the U.S. through direct-to-consumer sales and ultra-low prices, have been accused of exploiting loopholes in trade regulations, giving them an unfair edge over American businesses.
At the core of the new regulations is the proposed overhaul of the “de minimis” exemption, a rule that permits packages valued at less than $800 (£600) to enter the U.S. without being subject to tariffs and import fees. The Biden administration has signaled that this exemption, which was raised from $200 to $800 in 2016 to simplify trade procedures, has been heavily abused by Chinese firms to flood the U.S. market with low-cost goods. This has allowed companies like Shein and Temu to circumvent tariffs on products such as textiles, footwear, and machinery, putting pressure on U.S. businesses that face higher costs.
The new regulations would not only remove the exemption for goods that are already subject to U.S. tariffs, but also increase the amount of information that shippers must provide to U.S. Customs and Border Protection (CBP), enabling more effective enforcement of trade laws. The administration cited an “exponential increase” in de minimis shipments, which have grown from 140 million packages in 2013 to more than one billion in 2022. This surge has placed significant strain on U.S. customs authorities, making it difficult to screen shipments and prevent illegal or unsafe goods from entering the country.
Shein and Temu Push Back on Accusations
Shein and Temu, both of which are based in China, have responded to the proposed changes by defending their business models. Temu, which operates under parent company PDD Holdings, stated that its success in the U.S. is the result of its highly efficient business strategy, which eliminates unnecessary middlemen and passes savings on to consumers. The company noted that it is reviewing the proposed regulations, but emphasized that its growth does not rely on the de minimis exemption.
Meanwhile, Shein, known for its fast-fashion dominance, has pointed to its “on-demand” business model, which allows it to produce and ship only what is needed, reducing waste and keeping costs low. Shein expressed support for reforming the de minimis exemption, provided that any changes are applied fairly across the board. The company also highlighted its commitment to compliance, noting that it is already participating in a pilot program with U.S. Customs to increase transparency in its shipments.
Rising Concerns Over Labor Practices and Product Safety
The rise of Shein and Temu in the U.S. market has sparked concerns not only about their competitive practices but also about the safety and sourcing of their products. U.S. lawmakers and regulators have raised alarms about the potential for forced labor in the supply chains of Chinese e-commerce platforms, with some warning that Temu in particular poses a “high risk” of selling products made using exploitative practices. Additionally, the influx of low-cost goods has overwhelmed U.S. customs officials, complicating efforts to ensure that products meet U.S. safety standards.
Commerce Secretary Gina Raimondo has been vocal in her support of the new regulations, stating that American businesses can compete on fair terms but have been hampered by foreign firms exploiting trade loopholes. “We are taking action to level the playing field and protect American jobs by closing these gaps,” she said.
Economic Impact and Consumer Response
The proposed changes are not without controversy, as some experts have warned that eliminating the de minimis exemption could lead to higher costs for U.S. consumers. The American Action Forum, a conservative policy group, has estimated that removing the $800 threshold entirely could result in $8 billion to $30 billion in additional costs, which companies would likely pass on to shoppers. This could diminish the appeal of low-cost e-commerce platforms like Shein and Temu, which have built their U.S. following through aggressive pricing strategies.
The proposed regulations will undergo a public comment period before being finalized, allowing businesses and consumers to weigh in on the potential impacts. Meanwhile, shares in PDD Holdings, the parent company of Temu, dropped more than 2% following the announcement, signaling investor concerns about how the new rules could affect the company’s future growth.
A Global Movement Towards Stricter Trade Controls
The U.S. is not the only major economy considering tighter regulations on low-value imports. Earlier in the year, reports from Bloomberg and the Financial Times indicated that the European Union is also exploring similar measures aimed at addressing the surge in low-cost shipments from Chinese e-commerce platforms. European authorities have expressed concerns over the potential for these imports to avoid taxes and disrupt local markets.
As the U.S. government moves forward with its plans to tighten shipping rules, the outcome could have far-reaching consequences for global trade, particularly for e-commerce platforms that have thrived under the current regulatory environment. The debate over the de minimis exemption and its role in international trade is set to continue, with both supporters and critics making their voices heard.
