Editor’s note: This story is part of a series on the de minimis rule’s supply chain impact and its uncertain future. Read the previous story here.
The White House is making moves to limit China-founded e-commerce platforms Shein and Temu’s use of the de minimis exemption, but industry observers aren't sure how much the plan will affect its intended targets.
The Biden-Harris administration's proposal unveiled Friday looks to cut off the use of de minimis, which exempts shipments of less than $800 from import duties and taxes, for a range of products covered by Section 201, 232 and 301 tariffs.
This would raise duties for many companies reliant on parcel shipping between the U.S. and China, such as Shein and Temu, which experts say would likely trickle down to price hikes for consumers who flock to the companies for a variety of fast fashion goods.
Beyond the need to pay import duties, scrapping the exemption would also call for standard reporting, bond and document requirements for these shipments, just like other freight entries, Flexport wrote last week.
The proposal also aims to push businesses to provide more detail about goods’ destinations and shipments’ contents, such as describing cargo as a "100% cotton men's T-shirt" rather than just a T-shirt, Flexport added. The White House says this will promote greater visibility into de minimis shipments.
"Some companies exploit the de minimis to conceal shipments of illegal and dangerous products and avoid compliance with U.S. health and safety and consumer protection laws," according to a White House fact sheet. "Other foreign entities use it to circumvent U.S. trade enforcement actions intended to level the playing field for American workers, retailers, and manufacturers."
"Rules that face legal challenges, significant lobbying, or political controversy can experience longer than normal delays. This one checks all boxes and has logistical and technical hurdles that other [government] agencies will present."
Craig Radford
Co-CEO at Wizmo Solutions
The White House's efforts appear to be targeting Shein and Temu, but industry observers say that the two e-commerce giants known for leveraging the de minimis exemption can navigate these changes without much trouble. Smaller businesses, on the other hand, could be strained by the added costs and administrative requirements.
Shein and Temu could skirt the impact
Even with import taxes factored in, Shein and Temu are likely to maintain competitive pricing versus U.S. retailers, Anthony Pizza, VP of marketing at freight forwarder Accelerated Global Solutions, said in a statement shared with sister publication Supply Chain Dive. Amid long-standing de minimis scrutiny, both companies have expanded and diversified their supply chains to limit their exposure to regulatory shifts, including by expanding their U.S. operations.
"SHEIN, for example, has expanded its manufacturing operations to countries such as Turkey, Mexico and Brazil," Pizza said. "The company has even begun producing some items in the U.S. through a print-on demand model. Meanwhile, Temu is adopting a semi-managed logistics approach to mitigate risks associated with these types of policy changes."
The changes could encourage further supply chain shifts by Shein and Temu, said Cindy Allen, CEO and managing director of the consultancy Trade Force Multiplier. One possibility is that Temu will ship more containers to U.S.-based warehouses for storage, so that the actual sale occurs after it arrives in the country. While Temu would pay duty on those containers imported into the U.S., it would streamline the entry process for the company if the de minimis exemption changes are realized.
"[They’ve] gone from 5,000 individual packages in that box to one entry for U.S. Customs," Allen said in an interview. "It's still going to have the same 5,000 individual items in that box, and they're probably going to be individually packaged."
While Temu is monitoring de minimis developments, its growth doesn't depend on policy related to the exemption, a spokesperson said in an email to Supply Chain Dive.
Shein wants reform on the exemption "to create a level, transparent playing field," and import compliance remains a top priority, a Shein spokesperson said in an email.
Hurdles for smaller businesses
Smaller businesses that lean on direct-to-consumer shipping from China or the resale of China-based goods in the U.S. may face a more sizable challenge in navigating de minimis changes, experts told Supply Chain Dive. Many of these companies lack the resources to quickly adjust their supply chains like Shein and Temu can.
One hurdle for these businesses is to classify their 10-digit Harmonized Tariff Schedule codes, which the proposal aims to mandate, according to Flexport. The codes, which categorize imported goods and determine duty rates, aren't always needed for de minimis entries today. If that changes, importers would face more customs requirements and related costs, since classifying products at the 10-digit level is defined as "customs business."
"This would mean hiring licensed customs brokers, executing customs power of attorney and establishing responsible supervision control procedures," Flexport said.
Temu and Shein can secure low customs brokerage fees due to the high volumes they ship, but many other e-commerce enterprises don't have that luxury, Allen said.
"They're going to be impacted by having to pay more duty, having to navigate a customs broker relationship that they don't have today," Allen said. "They're going to have to pay higher costs."
Still, there are some ways businesses can adjust their strategies to mitigate the impact of the White House's push, such as manufacturing in countries outside of China. Companies could make products in Vietnam to skirt Section 301 tariffs, said Izzy Rosenzweig, founder of e-commerce fulfillment company Portless, which helps shippers utilize a Shein- or Temu-like supply chain model.
As importers respond to the White House's proposal, they should also consider that changes to the exemption can happen as it advances through the implementation process, Craig Radford, co-CEO at Wizmo Solutions, noted in a LinkedIn post.
Trade-focused proposals also can take several months to finalize, he added.
"Rules that face legal challenges, significant lobbying, or political controversy can experience longer than normal delays," Radford said. "This one checks all boxes and has logistical and technical hurdles that other [government] agencies will present."
