The U.S. government is taking a decisive step to address what it views as an imbalance in international trade by proposing new regulations aimed at low-value shipments, particularly from China. The move is expected to significantly impact the business operations of Chinese e-commerce giants Shein and Temu, two companies that have swiftly gained a foothold in the U.S. market by leveraging lower prices and direct-to-consumer shipping models.
The heart of the new regulations lies in the “de minimis” exemption, a trade rule that allows packages valued under $800 (£600) to enter the U.S. without facing tariffs or other import fees. The Biden administration has now proposed a shift in this policy, seeking to eliminate this exemption for goods from China that are currently subject to tariffs. According to the administration, the rule has been exploited by Chinese e-commerce firms to undercut American competitors and flood the market with low-cost products, including textiles, apparel, shoes, and machinery.
A Policy in Transition
The “de minimis” exemption, which was raised from $200 to $800 in 2016, was initially intended to ease the burden on customs authorities and facilitate international trade by focusing resources on higher-value shipments. However, critics, including U.S. lawmakers, argue that the policy has inadvertently allowed firms like Shein and Temu to benefit disproportionately, shipping large volumes of low-value goods to U.S. consumers without paying the same duties and tariffs that domestic companies must face. As a result, the exemption has increasingly come under fire as it is seen to give Chinese companies an unfair advantage in the U.S. market.
The proposed rules will not only remove the exemption for Chinese goods but will also tighten information requirements for shipments, giving U.S. Customs and Border Protection (CBP) more tools to enforce trade laws. The administration cited an “exponential increase” in the number of de minimis shipments, which have surged from 140 million in 2013 to over one billion last year. This flood of packages has strained U.S. customs officials, making it difficult to inspect shipments thoroughly and enforce existing regulations.
Commerce Secretary Gina Raimondo emphasized the importance of these new measures, stating, “American businesses can compete on an even playing field, but the abuse of the de minimis rule by foreign companies, especially Chinese e-commerce platforms, has undermined that balance.”
Responses from Shein and Temu
The companies targeted by the new rules, Shein and Temu, have responded by defending their business practices. Temu, owned by Chinese conglomerate PDD Holdings, attributed its rapid growth to its highly efficient business model, which cuts out middlemen and allows savings to be passed directly to consumers. The company asserted that its success in the U.S. is not contingent on the de minimis exemption and that it remains committed to delivering value to its customers.
Shein, on the other hand, pointed to its “on-demand” production model as the driving force behind its expansion. The company indicated that it supports reforms to the de minimis exemption as long as the rules are applied uniformly across all businesses. Shein also highlighted its proactive approach to regulatory compliance, noting that it is already working with U.S. Customs as part of a pilot program to disclose more detailed information about the contents of each shipment.
Wider Economic Implications
While the proposed changes are aimed at leveling the playing field for U.S. companies, they also carry broader economic implications. The American Action Forum, a right-leaning think tank, estimated that eliminating the de minimis exemption entirely could lead to $8 billion to $30 billion in additional costs for consumers annually, as companies would likely pass on the increased expenses to shoppers. This has raised concerns that U.S. consumers, who have grown accustomed to the low prices offered by Shein and Temu, could face higher costs as a result of the new rules.
Politicians and regulators in the U.S. have also raised concerns about the safety of products sold on platforms like Temu, with some pointing to risks related to forced labor in the supply chain. These concerns, along with the strain on border and customs authorities caused by the surge in low-value imports, have added momentum to the push for regulatory change.
The proposed regulations are currently subject to a public comment period before they can be finalized, and industry experts are watching closely to see how this shift in U.S. trade policy will unfold. Meanwhile, shares in PDD Holdings, the parent company of Temu, fell by more than 2% following the announcement, reflecting investor unease over the potential impact of the new rules.
A Global Trend in the Making
The U.S. is not the only market considering stricter regulations on low-value imports. Earlier this year, both Bloomberg and the Financial Times reported that the European Union is exploring similar measures aimed at curbing the flow of low-cost goods from China. European regulators, much like their American counterparts, have raised concerns about the impact of these imports on local industries and the potential for tax evasion.
As the U.S. moves forward with its regulatory reforms, the outcome of this policy shift could set a precedent for how governments around the world approach the challenges posed by the rise of global e-commerce giants. For now, both consumers and companies are left waiting to see how the rules will evolve and what impact they will ultimately have on the marketplace.
