US rule change threatens Chinese e-tailers

Fast fashion e-tailers Temu and Shein's rapid rise in popularity in the United States could face serious challenges if President Donald Trump fulfills his promise of ending an exemption that allows low-cost parcels from China to enter the US duty free.

The de minimis exemption allows e-tailers such as Temu and Shein to send parcels valued under $800 from China to the US without paying duty and without customs inspections under US tax laws.

"If the de minimis exemption is ended permanently, both Temu and Shein would be well advised to change their business model," Z.John Zhang, a professor of marketing at the Wharton School of the University of Pennsylvania, told China Daily. "Anything short of that will not help the companies much and waste their resources."

Together, Shein and Temu account for 17 percent of the discount market in the US.

When Trump signed an executive order to impose additional tariffs of 10 percent on Chinese imports beginning Feb 4, part of that order included instructions to end the de minimis exemption.

But by Friday, he reversed that decision with another executive order which allowed the parcels to come in tariff free.

The de minimis exemption, as outlined in Section 321 of the Tariff Act of 1930, was first created in 1938. Its initial aim was to allow US citizens to bring back souvenirs from abroad.

Overall, it facilitated smooth global commerce and allowed small packages valued at less than $5 — $160 in today's value — to get to customers quickly and efficiently.

The value of the packages allowed under the exemption has gone up steadily over the years from $200 in 1994 to $800 in 2016 per person, per day.

Trump said while the exemption has been paused for now, it is scheduled to be stopped altogether when his secretary of commerce notifies him that a procedure is in place to "fully and expediently process and collect tariff revenue".

Pausing it initially caused such widespread confusion that the US Postal Service said it would stop accepting parcels from the Chinese mainland and Hong Kong temporarily on Tuesday. However, services resumed after 12 hours.

In fiscal year 2024, at least 1.36 billion shipments utilized de minimis, an increase from 637 million in 2020, data from US Customs and Border Protection showed.

At least 75 percent of all packages that came to the US under the rule were from China, according to Baird Equity Research.

In 2018, Chinese exports under de minimis amounted to $5.3 billion but rose rapidly to $66 billion in 2023, the Congressional Research Service found. Many of the parcels were shipped directly from China to customers.

Experts warned that in the future, changing the de minimis loophole would alter how firms operated, adding that it had upended the popularity of Western companies such as Zara, H&M and Primark.

George S. Yip, an emeritus professor at the Imperial College London and distinguished visiting professor at Northeastern University in Boston, Massachusetts, said that Chinese fast fashion brands have outperformed brands like Zara thanks to the former's quick management style, use of apps to communicate with staff and suppliers, ability to spot trends, and fast delivery.

In contrast, while Zara and H&M spearheaded fast fashion, they typically take longer to identify trends and buy fashion.

"Western companies have to learn to decide faster. Secondly, design faster. And, you know, these Chinese companies probably have designers based in China. Thirdly, of course, manufacture faster — this is something that Western companies can do, they can do more than manufacture," he said.

Other traditional US retailers who have to pay duties for bulk shipments to their warehouses say the rule is unfair to them.

Walmart and Amazon vowed to ship directly to consumers from China in a bid to fight off newcomers. Amazon launched its new Amazon Haul digital storefront last year with the aim of better competing with Temu and Shein.

Temu has gone to great lengths to advertise to US customers. Last year, it spent $21 million on three 30-second Superbowl commercials and offered $15 million in promotions.

Additionally, Temu and Shein's use of social media has been an integral part of their success, said Yip.

"Young women in particular want to post new things all the time. So often, they're buying clothes that they wear only once for the photo. And so, it's social media that's driven (popularity)," he said.

belindarobinson@chinadailyusa.com