The ongoing US-China trade war may soon have a new front as the Biden administration prepares to close a trade law loophole that has enabled Chinese e-retailers like Shein and Temu to sell products at rock-bottom prices in the US. If enacted, these changes could lead to significant price hikes for consumers and shift the dynamics of the global retail landscape.
Both Shein and Temu have built their American success on ultra-low prices, offering $5 T-shirts and $10 sweaters, attracting millions of price-conscious shoppers. However, a key factor allowing them to maintain these prices is the "de minimis" provision, a trade law exemption that permits goods valued under $800 to enter the US without facing import duties. This loophole has been in place since the 1930s but has come under scrutiny in recent years, especially with the rise of Chinese e-commerce giants.
Biden’s Move to Close the De Minimis Loophole
On Friday, the Biden administration announced its intention to revise the de minimis exemption. According to the Republican majority of the House Select Committee on the Chinese Communist Party (CCP), prices for Chinese-linked retailers like Shein and Temu could rise by at least 20% if the provision is changed.
"If the de minimis exemption is removed, then the cost of products from marketplaces like Shein and Temu will rise. They will still be cheap marketplaces, but they won’t have quite the competitive edge on price that they do now," said Neil Saunders, a retail analyst and the managing director of GlobalData.
The de minimis exemption allows packages under $800 to enter the US without import duties and with less scrutiny than larger shipments. This loophole has become a crucial element for Chinese e-tailers looking to evade the high tariffs imposed by the US on Chinese goods, a result of the ongoing trade war that started under the Trump administration and has continued under Biden.
By allowing smaller shipments to avoid tariffs, these companies have managed to outcompete American and European retailers, often undercutting them by significant margins. Now, the Biden administration’s proposal seeks to close this gap, with the potential to level the playing field for US businesses but at the expense of American consumers who have flocked to these platforms for their low-cost products.
The Impact on Prices and Market Competition
The proposed changes could drastically alter the retail landscape. Both Shein and Temu have made significant inroads into the US market, thanks to their rapid production of trending styles at prices far below what their competitors can offer. Shein alone is estimated to rake in over $30 billion in annual revenue, with Temu’s parent company, PDD Holdings, reporting $34.9 billion in revenue for fiscal 2023, a 90% year-on-year increase.
If Shein and Temu are forced to pay higher import duties, they may pass those costs on to consumers, which could erode their price advantage over retailers like H&M, Zara, Target, and Walmart. According to Edited, a London-based research firm, Shein’s average dress price of $28.51 is well below H&M’s $40.97 and Zara’s $79.69. A 20% increase would push the average Shein dress price to $34.21, narrowing the gap with its competitors.
While this increase may not seem significant, it could change consumer behavior. Shoppers who are already frustrated by the longer shipping times associated with Shein and Temu might start gravitating toward retailers with faster delivery options, especially if the price difference shrinks.
“Ultimately, while reforming the de minimis rules makes for a fairer and more level playing field, like any tariff it will end up costing consumers more,” Saunders explained.
Ongoing Investigations and Scrutiny
This move by the Biden administration is not happening in isolation. It follows more than a year of investigations by lawmakers into the business practices of Shein and Temu. The House Select Committee on the CCP has accused both companies of benefiting unfairly from the de minimis exemption, with a report in June 2023 stating that neither paid import duties in 2022.
Shein has disputed these claims, asserting that it paid millions in import duties in both 2022 and 2023. However, the company did admit that cotton from banned regions has been found in its supply chain and is working to rectify the issue. Temu, for its part, did not respond to inquiries about forced labor in its supply chain, which has become another focal point of scrutiny.
“As the Select Committee’s investigation into Shein and Temu revealed, the majority of products from Shein and Temu fall under the de minimis exception. This allows them to dodge U.S. Customs and evade the scrutiny other retailers face. The U.S. must urgently curb these shipments and force these companies to correct their anemic compliance practices,” said a spokesperson for the committee.
The committee has also been vocal about the need for Congress to pass reforms to the de minimis provision, arguing that Chinese e-tailers are taking unfair advantage of the US market. This scrutiny has cast a shadow over Shein’s ambitions of launching a US public offering, with numerous lawmakers calling on the Securities and Exchange Commission to block Shein’s IPO.
Shein’s IPO Plans in Jeopardy
Shein has been eyeing a public listing for years, and a US IPO was once considered a logical next step in its meteoric rise. However, as scrutiny of the company’s business practices has increased, those plans have faltered. Reports from June 2023 indicated that Shein had confidentially filed for an IPO in London instead, as it faced growing backlash in the US.
The potential closure of the de minimis loophole adds another layer of uncertainty to Shein’s IPO aspirations. Without the ability to rely on this provision, Shein may find it harder to maintain the profitability that would make a public listing attractive to investors.
The Broader Context of the US-China Trade War
The US-China trade war, which began under the Trump administration with the imposition of tariffs on Chinese goods, has evolved into a complex web of economic and political confrontations. The tariffs were intended to protect American industries from what the US perceived as unfair trade practices by China, including intellectual property theft, forced technology transfers, and state subsidies that gave Chinese companies an edge in global markets.
Under Biden, the focus has shifted from a blanket imposition of tariffs to more targeted measures aimed at specific sectors and companies. The scrutiny of Chinese e-tailers like Shein and Temu is part of a broader strategy to curb China’s growing influence in key areas of the global economy, from e-commerce to technology and manufacturing.
The proposed changes to the de minimis provision could serve as a significant blow to Chinese companies seeking to dominate the US retail market. For Shein and Temu, it may mark the end of an era of rapid growth fueled by low prices and minimal regulatory oversight. For American consumers, it could mean higher prices—but potentially fairer competition for US retailers who have long struggled to compete with their Chinese counterparts.
(Source:www.npr.org)
Both Shein and Temu have built their American success on ultra-low prices, offering $5 T-shirts and $10 sweaters, attracting millions of price-conscious shoppers. However, a key factor allowing them to maintain these prices is the "de minimis" provision, a trade law exemption that permits goods valued under $800 to enter the US without facing import duties. This loophole has been in place since the 1930s but has come under scrutiny in recent years, especially with the rise of Chinese e-commerce giants.
Biden’s Move to Close the De Minimis Loophole
On Friday, the Biden administration announced its intention to revise the de minimis exemption. According to the Republican majority of the House Select Committee on the Chinese Communist Party (CCP), prices for Chinese-linked retailers like Shein and Temu could rise by at least 20% if the provision is changed.
"If the de minimis exemption is removed, then the cost of products from marketplaces like Shein and Temu will rise. They will still be cheap marketplaces, but they won’t have quite the competitive edge on price that they do now," said Neil Saunders, a retail analyst and the managing director of GlobalData.
The de minimis exemption allows packages under $800 to enter the US without import duties and with less scrutiny than larger shipments. This loophole has become a crucial element for Chinese e-tailers looking to evade the high tariffs imposed by the US on Chinese goods, a result of the ongoing trade war that started under the Trump administration and has continued under Biden.
By allowing smaller shipments to avoid tariffs, these companies have managed to outcompete American and European retailers, often undercutting them by significant margins. Now, the Biden administration’s proposal seeks to close this gap, with the potential to level the playing field for US businesses but at the expense of American consumers who have flocked to these platforms for their low-cost products.
The Impact on Prices and Market Competition
The proposed changes could drastically alter the retail landscape. Both Shein and Temu have made significant inroads into the US market, thanks to their rapid production of trending styles at prices far below what their competitors can offer. Shein alone is estimated to rake in over $30 billion in annual revenue, with Temu’s parent company, PDD Holdings, reporting $34.9 billion in revenue for fiscal 2023, a 90% year-on-year increase.
If Shein and Temu are forced to pay higher import duties, they may pass those costs on to consumers, which could erode their price advantage over retailers like H&M, Zara, Target, and Walmart. According to Edited, a London-based research firm, Shein’s average dress price of $28.51 is well below H&M’s $40.97 and Zara’s $79.69. A 20% increase would push the average Shein dress price to $34.21, narrowing the gap with its competitors.
While this increase may not seem significant, it could change consumer behavior. Shoppers who are already frustrated by the longer shipping times associated with Shein and Temu might start gravitating toward retailers with faster delivery options, especially if the price difference shrinks.
“Ultimately, while reforming the de minimis rules makes for a fairer and more level playing field, like any tariff it will end up costing consumers more,” Saunders explained.
Ongoing Investigations and Scrutiny
This move by the Biden administration is not happening in isolation. It follows more than a year of investigations by lawmakers into the business practices of Shein and Temu. The House Select Committee on the CCP has accused both companies of benefiting unfairly from the de minimis exemption, with a report in June 2023 stating that neither paid import duties in 2022.
Shein has disputed these claims, asserting that it paid millions in import duties in both 2022 and 2023. However, the company did admit that cotton from banned regions has been found in its supply chain and is working to rectify the issue. Temu, for its part, did not respond to inquiries about forced labor in its supply chain, which has become another focal point of scrutiny.
“As the Select Committee’s investigation into Shein and Temu revealed, the majority of products from Shein and Temu fall under the de minimis exception. This allows them to dodge U.S. Customs and evade the scrutiny other retailers face. The U.S. must urgently curb these shipments and force these companies to correct their anemic compliance practices,” said a spokesperson for the committee.
The committee has also been vocal about the need for Congress to pass reforms to the de minimis provision, arguing that Chinese e-tailers are taking unfair advantage of the US market. This scrutiny has cast a shadow over Shein’s ambitions of launching a US public offering, with numerous lawmakers calling on the Securities and Exchange Commission to block Shein’s IPO.
Shein’s IPO Plans in Jeopardy
Shein has been eyeing a public listing for years, and a US IPO was once considered a logical next step in its meteoric rise. However, as scrutiny of the company’s business practices has increased, those plans have faltered. Reports from June 2023 indicated that Shein had confidentially filed for an IPO in London instead, as it faced growing backlash in the US.
The potential closure of the de minimis loophole adds another layer of uncertainty to Shein’s IPO aspirations. Without the ability to rely on this provision, Shein may find it harder to maintain the profitability that would make a public listing attractive to investors.
The Broader Context of the US-China Trade War
The US-China trade war, which began under the Trump administration with the imposition of tariffs on Chinese goods, has evolved into a complex web of economic and political confrontations. The tariffs were intended to protect American industries from what the US perceived as unfair trade practices by China, including intellectual property theft, forced technology transfers, and state subsidies that gave Chinese companies an edge in global markets.
Under Biden, the focus has shifted from a blanket imposition of tariffs to more targeted measures aimed at specific sectors and companies. The scrutiny of Chinese e-tailers like Shein and Temu is part of a broader strategy to curb China’s growing influence in key areas of the global economy, from e-commerce to technology and manufacturing.
The proposed changes to the de minimis provision could serve as a significant blow to Chinese companies seeking to dominate the US retail market. For Shein and Temu, it may mark the end of an era of rapid growth fueled by low prices and minimal regulatory oversight. For American consumers, it could mean higher prices—but potentially fairer competition for US retailers who have long struggled to compete with their Chinese counterparts.
(Source:www.npr.org)
