The Biden administration announced on Friday (September 13) that it is taking measures to curb the abuse of the “De minimis” import tax policy. Chinese e-commerce companies such as Shein and Temu under Pinduoduo are accused of exploiting this policy, allowing a large number of cheap goods to enter the United States in the form of “small packages”.
The White House stated in a press release, “Today, the Biden-Harris administration is taking new actions to enforce the law, protect American consumers, workers, and businesses, and address the issue of excessive use and abuse of the ‘De minimis’ exemption, especially by Chinese e-commerce platforms.” It will strengthen efforts to target and prevent the shipping of goods that violate U.S. laws.
White House officials mentioned that new trade rules will be proposed to deny tariff exemptions for packages containing low-value goods, which are subject to the Section 301 tariffs on Chinese goods, Section 232 tariffs on steel and aluminum products, and Section 201 “Safeguard Measures” tariffs on products including solar products and washing machines.
Daleep Singh, Deputy National Security Adviser at the White House, told reporters, “The sharp increase in ‘small packages’ makes it increasingly difficult to target and prevent illegal or unsafe parcels from entering the U.S. through this channel.”
A senior government official mentioned that the aim of the new rules is to reduce the number of “small packages” benefiting from the “De minimis” policy to a more manageable level for better screening.
The “De minimis” exemption has been a part of U.S. trade law since 1930, initially to facilitate individual travelers. However, in 2015, the threshold was raised from $200 to $800 to assist small businesses, including sellers on e-commerce platforms like eBay. As long as the parcels are sent to personal addresses and fall below the limit, they can enter the U.S. duty-free with fewer customs inspections.
Since then, the number of packages below $800 entering the U.S. has surged. According to White House estimates, over the past decade, the number of small packages has increased from around 140 million to over 1 billion. This growth is mainly attributed to Chinese e-commerce companies.
Major beneficiaries include Shein and Temu, companies that ship directly from China to American consumers. American textile manufacturers accuse this exemption of allowing cheap clothing to bypass Section 301 tariffs, which cover about 70% of textile and clothing imports from China.
The White House stated that “Section 301 tariffs currently cover around 40% of U.S. import products, including 70% of textiles and clothing imported from China. Some e-commerce platforms and other foreign sellers ship from China to the U.S., claiming ‘De minimis’ exemption, thereby avoiding these tariffs. If finalized, these goods will no longer qualify for the ‘De minimis’ exemption.”
Last year, the House Committee on China released a report on Shein and Temu, concluding that 30% of all packages entering the U.S. daily through the “De minimis” were from these two companies, nearly half of all “small packages” entering the U.S. from China.
According to CNBC, Chinese retail giants may have avoided tens of millions of dollars in tariffs through the “De minimis” loophole. Based on data from the House Committee on China, in 2022 alone, Gap paid $700 million in import taxes, H&M paid $205 million, while David’s Bridal paid $19.5 million. In contrast, Shein and Temu did not pay any import taxes.
The proposed rules will also include additional requirements for information disclosure on small packages to help U.S. Customs and Border Protection officials better identify parcels carrying illegal or unsafe products, such as precursor chemicals for manufacturing deadly opioid fentanyl.
The White House announcement came two days after Democratic members of Congress urged President Biden to use executive authority to close the “De minimis” loophole, which allows Chinese imported goods to evade tariffs and potentially smuggle drugs into the U.S. without Customs inspections.
U.S. lawmakers further contend that the “De minimis” exemption enables Shein and Temu to import products made with forced labor into the U.S. without detection.
Shein argues that the affordability of their products is due to their overall business model and not related to the “De minimis” exemption. The company has acknowledged finding banned cotton from certain regions in its supply chain and claimed to be working on resolving the issue.
According to CNBC, the Biden administration is also urging Congress to pass legislation for comprehensive reform of the existing “De minimis” rules. Government officials noted they are working with legislators to push for reforms of trade terms for certain import-sensitive products.
The White House mentioned in a press release, “In addition to the highlighted ‘De minimis’ reform, the U.S. government is exploring other decisive actions to support American textile and clothing manufacturers and their workers.”