The Biden administration has announced plans to tighten trade regulations that have allowed Chinese-linked online retailers Shein and Temu to dominate the U.S. market with rock-bottom prices. These proposed changes target the use of a long-standing trade law loophole, known as the de minimis exemption, which has enabled these companies to avoid paying import duties on small shipments. As a result, prices for Shein and Temu products could increase by at least 20%, according to estimates from the House Select Committee on the Chinese Communist Party.
Shein and Temu, popular for their $5 T-shirts and $10 sweaters, have leveraged the de minimis exemption to ship millions of low-cost items directly to consumers in the U.S. without incurring the same import duties as traditional retailers. This loophole, which allows packages valued at less than $800 to enter the country without import taxes, has come under intense scrutiny as lawmakers seek to create a more level playing field for American businesses.
On Friday, the Biden administration took a decisive step by proposing rules that would bar shipments of products subject to U.S.-China tariffs from qualifying for the de minimis exemption. This move is part of a broader effort to crack down on Chinese e-commerce platforms and address concerns about unfair competition, labor practices, and national security risks. The administration's proposal follows more than a year of bipartisan investigations into Shein and Temu, focusing on their business practices and the potential exploitation of loopholes in U.S. trade law.
Retail analysts predict that the policy change could lead to a noticeable increase in prices for Shein and Temu products, though the extent of the impact remains uncertain. Neil Saunders, managing director of GlobalData, noted that while the companies may still offer competitive prices, their current edge over rivals like H&M, Zara, Target, Walmart, and Amazon could diminish. "If the de minimis exemption is removed, the cost of products from marketplaces like Shein and Temu will rise. They will still be cheap marketplaces but won't have quite the competitive edge on price that they do now," Saunders said.
Shein and Temu have so far declined to comment on whether they plan to raise prices in response to the proposed changes. Both companies have defended their business models, arguing that their success is not solely dependent on the de minimis exemption. Shein, which reportedly generates over $30 billion in annual revenue, has stated that it supports de minimis reform and is participating in a voluntary pilot program with U.S. Customs and Border Protection to enhance compliance.
However, the potential price hikes could affect consumer behavior. If Shein's prices were to increase by 20%, the average cost of a dress on the platform would rise from $28.51 to $34.21, bringing it closer to the prices of competitors like H&M and Zara. This shift could lead some consumers to explore other retailers that offer faster shipping times and comparable prices, potentially slowing Shein's rapid growth in the U.S. market.
The Biden administration's proposed changes are also part of a broader effort to address concerns about the influx of goods entering the U.S. through the de minimis loophole, which has seen a dramatic increase in recent years. In 2022 alone, more than 1 billion packages were shipped to the U.S. under this exemption, compared to 140 million a decade ago. Lawmakers have raised alarms about the implications for American workers, retailers, and manufacturers, as well as the challenges in ensuring that these shipments comply with health, safety, and intellectual property laws.
Moreover, the de minimis exemption has been linked to the illegal importation of narcotics and drug-processing equipment, further fueling calls for reform. In response to these concerns, the White House has proposed additional requirements for shipments seeking the exemption, including the submission of certificates of compliance to the Consumer Product Safety Commission.
