As China’s cross-border e-commerce market grows, aided by the overseas success of budget e-commerce apps like Temu and Shein, some US government representatives are pushing for the removal of a valuable trade exemption for Chinese shippers, in a move that could potentially harm their price advantages.
Bipartisan bills were introduced to the US Congress last week that sponsors say would target China’s e-commerce sector by revising a “loophole” that allows millions of low-value Chinese shipments to enter the country duty-free each day.
The exception in question, known as the de minimis rule, exempts imports valued at US$800 or less from tariffs if the items are shipped to individual consumers. If it is repealed for Chinese imports, experts say it could affect the bottom line of online shopping platforms like fast-fashion giant Shein and PDD Holdings’ Temu, which ship from China.
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“It would increase the operational cost for cross-border e-commerce companies, putting them in a disadvantageous position in global competition,” said Zhang Zhouping, an analyst focusing on transborder e-commerce at Hangzhou-based market consultancy 100ec.cn.
As part of the US-China trade war, an additional 25 per cent tariff was placed on a wide range of Chinese imports in addition to existing duties starting in 2019. Zhang said if Temu and Shein had to pay this, it would likely be passed on to US consumers through increased prices.
According to Allison Malmsten, marketing director at China-focused market research firm Daxue Consulting, the rule’s removal could cut into the wide price advantages that have helped Temu, Shein and other Chinese shippers take business from US shippers such as Amazon, levelling the playing field in fast fashion between the US and China.
“De Minimis has been a crucial loophole for Shein and Temu to maintain ultra-competitive low prices of their products”, Malmsten added.
Temu states on its website that it has “a strict policy against the listing or sale of products that violate a third-party’s trademark, copyright or patent rights”.
The recent success of Temu and Shein overseas has come against a backdrop of strong growth in China’s cross-border e-commerce sector, with imports and exports exceeding 2 trillion yuan (US$280.6 billion) for the first time in 2022, marking an increase of 7.1 per cent compared with 2021, state media outlet Xinhua reported on Sunday.
The report added that among the export destinations in China’s cross-border e-commerce in 2022, the United States accounted for over a third of the market.
While cheaper Chinese shopping alternatives have become popular in the US amid higher inflation, the imports have increasingly attracted the ire of US officials. According to US sponsors of bills to revise the de minimis rule, the change would not only be to implement trade duties but to target the flow of illegal goods.
In addition to duty exemptions, de minimis shipments can enter the country without undergoing US Customs and Border Protection inspection.
A US federal report in April accused Shein and Temu of posing data risks and questioned their use of the de minimis exemption to import illegal items, such as those that violate intellectual property or those that violate the US’s 2021 Uygur Forced Labour Prevention Act (UFLPA).
“The de minimis loophole is a threat to American competitiveness, consumer safety, and basic human rights”, said US Congressman Earl Blumenauer, who reintroduced The Import Security and Fairness Act that targeted revising the de minimis law last week. The bill had previously been introduced last year, and it is unclear if it will pass this session.
“It puts American businesses at a competitive disadvantage while flooding American consumers with undoubtedly harmful products,” Blumenauer added.
Temu and Shein did not respond to a request for comment.
Under Blumenauer’s proposal, with versions introduced in both houses of Congress, imports from China and Russia would lose de minimis. It follows a separate De Minimis Reciprocity Act led by Senator Bill Cassidy that would similarly deny China access to the trade exemption but includes a provision to lower the US’s de minimis threshold.
However, despite threats from potential trade tariffs in the US, China’s supply chain remains advantageous for Temu and Shein in the short term, according to Li Chengdong, founder and chief analyst at Beijing-based e-commerce consultancy Dolphin.
In the context of prices that are already very low, a 25 per cent increase would be relatively small, said Li. Temu, for example, features a wide selection of budget items, with some of the cheapest home decor items priced below US$1 and some gadgets available for just a few dollars.
There are not many substitutes for the cheap products sold through cross-border budget shopping platforms, with suppliers from Vietnam and India currently unable to match the prices that the Chinese supply chain can offer, Li added.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.