According to a report by Reuters, the “Victoria’s Secret Town,” an underwear industry supported by the local government in Guanyun County, 180 miles (290 kilometers) east of Nanjing City, has thrived due to the US “De Minimis” import tax exemption policy, also known as the “small package” rule. However, with President-elect Trump promising to impose higher tariffs on Chinese imports, President Biden has announced that the preferential policy may soon be tightened or even canceled.
The US introduced the “De Minimis” tax exemption policy to reduce customs paperwork. Under this rule, foreign packages valued at $800 or less shipped to individuals are exempt from tariffs. This policy has led to rapid growth in Chinese e-commerce companies like Shein and PDD Holdings, as well as manufacturers selling through platforms like the industrial zone of “Victoria’s Secret Town.” However, this policy has also been exploited for criminal purposes, such as fentanyl smuggling.
President Joe Biden has attempted to “plug the (small package) loophole” in the final stages of his term, taking measures to curb the misuse of the De Minimis policy. On the other hand, President-elect Donald Trump pledged to increase tariffs on Chinese imports, and the EU and other countries are also considering similar restrictions.
The “Victoria’s Secret Town” has no official affiliation with the American lingerie brand. Lei Congrui, one of the industrial zone owners, mentioned that the limitations on the tax-free “small package” policy and the tariff increases “will have a relatively significant impact on our businesses.” His clothing company serves clients like Shein, with 70% of its revenue depending on the US market.
Nomura Securities estimates that China will export goods worth $240 billion this year, benefiting from the “small package” tariff exemption, accounting for 7% of its overseas sales and contributing 1.3% to its domestic GDP.
The institution predicts that if the US cancels the “small package” tariff exemption, export growth will decrease by 1.3 percentage points and GDP growth will decrease by 0.2 percentage points. The numbers would significantly worsen if Europe and Southeast Asia also cancel this exemption.
Nomura’s Chief China Economist Lu Ting stated, “We expect the blue-collar workers from those small factories, producing unbranded, low-value-added, and labor-intensive products, to be most severely affected.” He mentioned that the clothing industry is one of the sectors at risk.
The local government of Guanyun, the Ministry of Commerce of China, Shein, and PDD have not responded to requests for comments.
Signs indicate that the phased opening of the “Victoria’s Secret Town” since 2021 may not meet the expectations of the heavily indebted local authorities. Despite knowing that overcapacity stimulus and deflationary pressures could further worsen the situation, the Guanyun authorities risked pouring 22 billion yuan ($3 billion) into the industrial park.
Lei mentioned that many friends, relatives, and neighbors have also started similar businesses. He noted that there are around 1,400 companies producing this type of lingerie in Guanyun, a town with a population of about 1 million, employing 100,000 people.
On a day in November, most parts of the industrial park appeared empty. The launch dates for other phases of the industrial park plan, including research, design, and construction of e-commerce logistics buildings, have not been announced yet.
Other industrial zones in China also face systemic over-investment issues.