Chinese online retailers Shein and Temu in spotlight as US seeks to plug trade ‘gap’, ET BrandEquity

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The Biden administration on Friday announced steps to limit the number of low-value shipments that enter the U.S. duty-free below an $800 “de minimis” threshold that has been exploited by Chinese e-commerce companies such as Shein and Temu, owned by PDD Holdings.

White House officials said they will propose new rules that would not apply to shipments of low-value items that are subject to Section 301 tariffs on Chinese goods, Section 232 tariffs on steel and aluminum products and Section 201 “safeguard” tariffs on products that include solar products and washing machines.

The proposed trade rules include requiring new disclosures about small packages to help U.S. Customs and Border Protection agents better identify the contents of illegal or dangerous products, such as precursor chemicals that can be made into the deadly opioid fentanyl.

“American workers and businesses can compete on a level playing field, but for too long, Chinese e-commerce platforms have circumvented tariffs by abusing the de minimis exemption,” said U.S. Commerce Secretary Gina Raimondo.

The statement came two days after Democrats called on President Joe Biden to use executive powers to close the de minimis provision, calling it a “loophole” that allowed Chinese importers to bypass tariffs and ship drugs without customs inspection.

This exemption has been part of U.S. trade law since 1930 and is intended to make life easier for individual travelers, but in 2015 the threshold was raised from $200 to $800 to help small businesses, including sellers on e-commerce platforms like eBay.

Shipments not exceeding this limit are subject to duty-free customs control, provided they are addressed to the place of residence of natural persons.

The volume of packages valued at less than $800 has skyrocketed from about 140 million a decade ago to more than a billion last year, White House officials said, attributing most of the growth to Chinese e-commerce companies.

“One billion is too large a sum for our officials to block if it is dangerous … or violates our laws,” a senior Biden administration official said.

“Shein and Temu make up a large portion of that. We are very concerned that large foreign companies are exploiting this loophole on such a large scale and to such a large extent, which we believe amounts to abuse,” the official said.

Reacting to the U.S. action, Shein echoed comments made last year by Executive Chairman Donald Tang, who called for de minimis reform “to create a level, transparent playing field where the rules are applied evenly and uniformly.”

Shares in Temu owner PDD Holdings fell about 3%, even though Temu said its growth was not affected by the exemption. “We are considering new regulatory proposals and remain committed to delivering value to consumers,” the spokesman said.

If the rule goes into effect, it could lead to market share gains among U.S. retailers that serve low- and moderate-income households, such as dollar stores, said Jason Benowitz, senior portfolio manager at Segall Bryant & Hamill.

American textile producers blame the exception for allowing them to bypass U.S. Section 301 tariffs, which cover about 70% of China’s large-scale textile and apparel imports.

“The dramatic increase in de minimis shipments has made it increasingly difficult to track and block illegal or dangerous shipments entering the United States through these channels,” said White House deputy national security adviser Daleep Singh.

“That’s why the Administration is launching a regulatory process to curb abuse and de minimis overreach.”

The goal of the new rules is to reduce de minimis shipments to a more manageable level so they can better control shipments, a senior administration official said.

Another proposed rule would require such shipments to include product tariff codes and other information to help identify suspicious shipments.

It was not clear how quickly the proposed rules would be implemented, as they would need to be subject to public comment before they could be finalized.

Administration officials said they are working with lawmakers to pass reforms to trade rules that provide blanket exclusions for certain sensitive products from imports.

The move was announced the same day the Biden administration approved drastic increases in U.S. tariffs on about $18 billion worth of Chinese imports, including a 100% tariff on electric vehicles, 50% on solar chips and cells, and 25% on lithium-ion batteries, steel and aluminum.