Daily Management Review

Significant Trade Gaps Keep Inexpensive Chinese Goods Coming To The US


Significant Trade Gaps Keep Inexpensive Chinese Goods Coming To The US
A long-standing loophole that permits inexpensive goods like $10 dresses to arrive in U.S. mails tariff-free has spurred the rapid emergence of shopping sites offering Chinese-made goods, such Shein and Temu.
This is made possible by the "de minimis" rule, which exempts shipments addressed and dispatched to people and priced at $800 or less from tariffs. The exemption is available to all shops, although Temu, owned by Shein and PDD Holdings, and perhaps TikTok's next e-commerce venture, use it the most frequently.
According to a House of Representatives committee study from June, Shein and Temu are likely responsible for more than 30% of all de minimis shipments to the United States.
Its release reflected increased congressional scrutiny of the clause, which opponents claim lets the businesses avoid higher duties on Chinese imports and customs inspections in accordance with a rule that forbids the sale of goods created with forced labour. Shein is now a particularly prominent target as it considers a US initial public offering.
The China-based business informed Reuters that since entering the market in 2012, it has complied with American tax and customs requirements.
Shein is not reliant on the exemption for its success, according to Peter Pernot-Day, its global head of strategy, who spoke to Reuters. Instead, he blamed the company's routine of keeping tabs on online trends and ordering modest initial batches of clothing from its suppliers.
According to Pernot-Day, they only increase production if the styles are successful, preventing costly extra inventory.
Shein called for de minimis reform in a letter to the American Apparel and Footwear Association (AAFA) in late July, but she made no particular policy suggestions. It has lobbied politicians on "trade and tax related matters" recently, according to records made to the U.S. Senate.
A request for comment from Temu, which debuted in the United States in 2022, went unanswered. In addition, TikTok, which is owned by ByteDance of Beijing, did not immediately respond to a request for comment.
De minimis shipments into the United States increased to 685.5 million in 2022, up over 67% from 2018. This is according to data from U.S. Customs and Border Protection.
According to Robert Silvers, Under Secretary for Policy at the Department of Homeland Security, that equates to around two to three million shipments every day.
Bipartisan U.S. lawmakers filed proposals in June that, if passed, would forbid de minimis shipments from China.
Some MPs have expressed their frustration over the fact that de minimis benefits Chinese products and businesses with Chinese roots. The clause was referred to as a "free trade agreement for China" during a hearing in May by Republican Representative Jason Smith, who serves as the head of the House Ways and Means Committee.
The exception has become a source of growing concern for rival U.S. merchants as Shein and Temu have increased their share of the market.
According to Senate records, more than a dozen merchants, including Tapestry, the parent company of Coach, and Mercari, a Japanese e-commerce site, have fought for the exemption since 2018.
Some businesses and trade associations, such as Columbia Sportswear and the AAFA, favour preserving the $800 cap but enabling businesses sending goods from U.S. foreign trade zones to also benefit from the exemption.
Others want the cap to be reduced or scrapped entirely, while some people who regularly use the provision are opposed to any changes.
In 2022, H&M and Gap paid $205 million and $700 million in import charges, respectively, according to a House committee report that was made public in June. Shein and Temu, whose products were shipped straight to clients under the de minimis provision, did not pay any import duties.
Everyone is eligible for the exemption, according to Steve Story, whose company Apex Logistics International assists shops and other businesses with de minimis shipping. "You're losing out if you don't want to save money and benefit from this e-commerce paradigm shift," he said.
Traditional merchants often import products in large quantities by ocean freight, paying tariffs when the items arrive at the port, then moving the goods to warehouses and shipping them to stores or customers who place online orders.
Small shipments covered by de minimis are frequently exempt from customs inspections in the United States and are not subject to tariffs. For delivery, they are often given to UPS, FedEx, or other carriers.
Additionally, merchandise from China may be transported across the ocean and delivered in large quantities to bonded warehouses in Mexico or Canada. After a consumer puts an online order, the items are delivered to the customer individually wrapped and duty-free into the United States.
The de minimis rule, which has been in effect since 1938, was initially created to apply to low-value presents sent to Americans from abroad and souvenirs they brought home from their travels. Congress increased the de minimis cargo threshold from $200 to $800 in 2015, making the American requirement one of the highest in the world.
According to Erik Autor, a trade lawyer at Barlow & Company, there was a "explosion in e-commerce" at the same time that caused more items to be transported under the exemption.