In the last decade, companies like Shein and Temu have taken advantage of loopholes in U.S. import law to bring tons of low-cost goods into the country while paying little in taxes. It’s part of what has helped these companies grow to be billion-dollar businesses. But a new Biden administration plan, announced last week, seeks to end that practice.
The de minimis exemption is a ruling in U.S. import law established at the beginning of the 20th century that eliminates duties and taxes for imports below a certain price threshold. Originally, that was just $200, but it was raised to $800 in 2016. The administration said that, in the last 10 years, the number of annual shipments entering the country that were under the set limit increased from 140 million to over 1 billion.
The administration plans to issue an executive order prohibiting items that are subject to certain tariffs from meeting the de minimis exemption. The rule would exclude roughly 70% of textile and apparel shipments coming from China, many of them from brands like Shein or Temu. The administration also urged Congress to pass more sweeping reforms to import taxation next year.
According to experts, that change would do more than just curb the tax-free imports from those brands. It would also protect brands with higher-value goods that are paying duties from being undercut by low-cost competitors, and it would potentially help fight against the traffic of illegal goods, they said.
“There has been a tidal wave in de minimis shipments that have been driven by Chinese online retail giants such as Shein and Temu,” said Margaret Kidd, program director of supply chain and logistics at the University of Houston. “The current volumes have led to unintended negative consequences, such as making drug trafficking easier, a proliferation of counterfeit goods, a movement of low-quality and unsafe goods, and missed tax duties.”
But not every side-effect of the rule change would be a benefit for U.S. customers, according to Ash Jamshidpour, founder and CEO of e-commerce shipping and fulfillment company ShipTop. While the proposed change is not a blanket closing of the de minimis exemption, it would still affect roughly 40% of all U.S. imports which would almost certainly increase prices for goods.
“Ending the de minimis exemption could have a range of unintended side effects,” Jamshidpour said. “For consumers, this policy change could mean higher prices for goods that were previously more affordable. For smaller e-commerce businesses and international businesses using similar strategies, it might create additional barriers to market entry.”
He added, “A more focused approach would be to address the large-scale exploitation of this rule, particularly by targeting high-volume shipments directly from China, rather than broadly impacting the entire international e-commerce ecosystem.”
The Trump campaign hasn’t made a statement on the proposed rule change. Tariffs and bolstering U.S. trade’s competitiveness against China is one of the few areas where Republicans and Democrats tend to share similar strategies, so it’s unclear if a Trump victory in November would do anything to alter the fate of the de minimis exemption.
Both parties have sought to dull China’s competitive edge internationally, and Shein’s low, low prices have been one of the main drivers of its massive growth. Last week, lawmakers in both parties introduced a number of additional plans with similar aims, like the Biosecure Act which would forbid U.S. companies from working with some large Chinese biotech companies.
But in all the anti-China rhetoric in Washington, it’s important that lawmakers avoid harming U.S. consumers, said Robert Khacahtryan, CEO of global shipping company Freight Right Global Logistics.
“Ending the exemption may also increase customs processing times and add compliance costs for all businesses,” Khachatryan said. “While aimed at large players, smaller e-commerce sellers relying on cross-border sales may struggle with the added paperwork and potential delays.”
