The White House announced on Friday (September 13th) that measures will be taken to prevent the abuse of the “de minimis” policy. Analysts believe that if the Biden administration ultimately bets on this loophole, Chinese fast-fashion giant Shein and cross-border retailer Temu could soon raise their prices.
Shein, Temu, and other Chinese e-commerce companies are accused of exploiting the U.S. “de minimis” policy, allowing large quantities of inexpensive goods to enter the U.S. in the form of “small parcels”. This exemption allows goods valued at less than $800 to enter the U.S. duty-free, with little customs inspection. This policy was originally implemented by the U.S. government to facilitate receiving small parcels from abroad or souvenirs brought back from overseas vacations.
Last year, a report by the U.S. House of Representatives’ Special Committee on China found that 30% of all packages entering the U.S. through “de minimis” on a daily basis were from Shein and Temu, nearly half of all “small packages” entering the U.S. from China.
These two companies are known for selling cheap clothing items like $5 t-shirts and $10 sweaters. A spokesperson for the House of Representatives’ Special Committee on China told CNBC that if the “de minimis” provision is amended, prices at these companies could increase by at least 20%. The committee initiated an investigation into Shein and Temu over a year ago.
“The U.S. must urgently contain these goods and compel these companies to rectify their non-compliant practices,” the spokesperson said. “Congress must urgently enact the ‘de minimis’ reform act.”
As the scrutiny on Shein in the U.S. intensifies, the company’s prospects for completing an IPO in the U.S. are becoming increasingly uncertain.
Neil Saunders, Managing Director at GlobalData, a retail analysis, data analytics, and consulting company, also noted that policy changes could lead to price increases, but he could not specify the extent of the rise.
“If ‘de minimis’ is eliminated, then the cost of products on platforms like Shein and Temu will increase. While they will still be budget platforms, their price competitive advantage will not be as strong as it is now,” Saunders told CNBC in an email.
Saunders added that this could result in Shein and Temu losing some market share or slowing their growth, but they are likely to take countermeasures.
Shein and Temu have declined to disclose to CNBC whether they would raise prices due to the proposed policy adjustments. These companies have stated that their business models enable them to offer extremely affordable prices.
A spokesperson for Shein stated that the company supports the reform of the “de minimis” policy and recently participated in a voluntary pilot project accepted by U.S. Customs and Border Protection, agreeing to provide additional data on packages and cargo transport.
In recent years, these two companies have dominated the global market by selling inexpensive goods, taking market share away from competitors like H&M, Zara, Target, Walmart, and Amazon. If Shein’s prices were to increase by 20%, its products would be more comparable to those of its competitors, making it more challenging to compete.
A Reuters report on June 13th mentioned that Shein raised prices on some core products by over a third, potentially as a means to boost revenue prior to its IPO.
The U.S. is Shein’s largest sales market. According to data from London-based research company Edited, in the year leading up to June 1st, the average price of Shein’s women’s clothing increased by 28% in the U.S., reaching $28.51.
Data shows that H&M’s women’s clothing averages $40.97, and Zara’s averages $79.69. While Shein’s prices remain lower than these two competitors, a 20% price increase would raise the average price of its women’s clothing to $34.21, bringing it closer to H&M.
If the Biden administration’s proposal takes effect, although the price increase at Shein may not necessarily be 20%, the reduced price difference due to longer delivery times from Shein could prompt some consumers to choose retailers closer to home.
CNBC previously reported that Chinese retail giants may have circumvented millions of dollars in tariffs through the “de minimis” loophole. According to data from the U.S. House of Representatives’ Special Committee on China, in just 2022, Gap paid $700 million in import duties, H&M paid $205 million, and David’s Bridal paid $19.5 million. In contrast, Shein and Temu paid no import duties.
The White House stated in the news on Friday, “Section 301 tariffs currently cover about 40% of U.S. imports, including 70% of textiles and apparel imported from China. Some e-commerce platforms and other foreign sellers ship goods from China to the U.S., claiming ‘de minimis’ status to evade these tariffs. If finalized, these goods will no longer qualify for ‘de minimis’ status.”