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The Biden administration is moving to narrow a trade loophole that Chinese online retailers like Shein and Temu have used to ship a torrent of packages containing cheap goods into the US every day.
White House officials on Friday announced they intend to propose rules that would rein in use of the so-called de minimis exemption allowing products worth less than $800 to go directly to consumers without customs declarations or duties. The measures are aimed at reducing the evasion of US tariffs on Chinese goods and preventing fentanyl-laced shipments from entering the country.
They would remove de minimis eligibility from products subject to trade enforcement actions under Section 301 and Section 201 of the US Trade Act, and Section 232 of the Trade Expansion Act. Since about 70% of Chinese textile and apparel imports are subject to Section 301 tariffs, the move would kneecap shipments entering through de minimis.
The administration is also pursuing rulemaking for new information collection requirements and “implementing new steps” to ensure that products meet consumer safety standards, said Daleep Singh, deputy national security adviser for international economics.
US shares of Temu-owner PDD Holdings fell 2.92% on Friday to $94.49 as of 2:45 p.m. in New York. PDD is down 36% this year, owing to economic malaise in China highlighted by a gloomy outlook issued by the e-commerce company last month.
Shipments under the de minimis standard have surged to 1 billion packages last year, up from 140 million a decade ago. That’s overwhelmed US agencies responsible for screening packages for unsafe or illicit goods, US officials said, as they unveiled the measures intended to strengthen protections for American consumers and workers.
“The drastic increase in de minimis shipments has made it increasingly difficult to target and block illegal or unsafe shipments coming into the US through this pathway,” Singh said.
Retailers and other businesses have pressed for changes to de minimis, saying that an onslaught of Chinese e-commerce sold directly to US consumers poses a risk to safety and jobs.
The US textile industry says that the recent boom in e-commerce—from Shein and Temu, in particular—has hamstrung manufacturers. The flood of goods entering via de minimis has contributed to 18 plants closing in the past year, the National Council of Textile Organizations said.
“We also know there’s more to be done,” Singh said, calling on Congress to pass legislation this year to comprehensively reform the de minimis exemption.
Lawmakers on both sides of the aisle have been unable to strike a deal that would reel in the law. Over 100 Democratic lawmakers earlier this week urged President Joe Biden to use his executive authorities to narrow the de minimis exemption.
Forced Labor Concerns
Lawmakers have warned that products illegally made with forced labor in the Xinjiang region of China can avoid detection through de minimis. They also say the law has created an easy route for fentanyl to get into the country undetected.
The current state of de minimis “allows foreign shippers to avoid tariffs that are intended to level the playing field for American manufacturers and retailers,” said Navtej Dhillon, deputy director of the National Economic Council, adding that changes to de minimis would also help protect consumers and US workers.
Temu and Shein have rattled the US retail industry, winning over shoppers with bargain prices and broad inventory. Temu bought splashy Super Bowl ads promising people they could “Shop Like a Billionaire.” Both companies tend to ship direct to shoppers from China-based warehouses, and their rise in recent years has suggested that many consumers were willing to wait more than a week for products to arrive if the price was right.
Amazon, the largest online retailer, has responded by cutting fees on cheap apparel and planning an online storefront for Chinese discount sellers to directly challenge the upstarts.
Dhillon signaled that de minimis reforms would help protect workers in states including Georgia and North Carolina—two of a handful of battlegrounds that are expected to be most competitive in the US presidential election.
The 1930s law was originally designed to help US travelers bring back a small amount of goods from abroad duty-free.
Calls to make changes to de minimis coincided with a two-year-old-law, the Uyghur Forced Labor Prevention Act, that assumes any product even partially sourced from Xinjiang was made with forced labor, unless a company can prove otherwise.
The Department of Homeland Security has ramped up enforcement of the Uyghur law this year, and Customs and Border Protection said it would heighten screening for packages claiming the de minimis exemption that could be tied to forced labor.
“We will leave no stone unturned in keeping fentanyl out of this country,” said Robert Silvers, DHS under secretary for policy, in a press release Friday. “We will not tolerate forced labor in our supply chains. With regulatory and statutory updates to modernize its enforcement mechanisms, CBP will have the instruments it needs to keep illicit goods out of our markets, while facilitating the legitimate trade that is the lifeblood of our economy.”
--With assistance from Eric Martin, Jenny Leonard, Michael Shepard and Matt Day.
(Updates with more background throughout and comment from Customs and Border Protection in last paragraph.)
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