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The Biden administration is moving to close a trade loophole used by platforms like Temu, Shein and AliExpress to flood the U.S. with cheap Chinese products.
The China-based e-commerce groups have fueled their growth by shipping low-cost packages via air freight directly to American consumers, taking advantage of a so-called de minimis exemption to avoid paying import duties on the shipments.
But the White House proposed new rules on Friday that would exclude a wide range of goods from qualifying for the tariff exemption, including shipments valued at less than $800. The proposed rules will also make applying for duty-free imports more complicated.
The U.S. said the number of shipments entering the country under the de minimis rule has risen from about 140 million a year a decade ago to more than a billion a year today. Officials said the large number of packages makes it difficult to stop shipments containing defective products and illegal drugs such as fentanyl.
The rules proposed by the Biden administration, which will undergo a public comment period before being adopted, threaten the business model that Chinese companies use to undercut online retailer Amazon and steal market share from it.
Amazon sellers typically ship their goods in bulk to the company’s warehouses and are therefore forced to pay import tariffs. These became even more expensive during Trump’s term in office, when higher tariffs were imposed on large portions of Chinese imports.
The new US regulations are intended to ensure that products delivered directly to consumers cannot escape the higher tariffs. According to the White House, 40 percent of imports from China are affected by these tariffs, including 70 percent of textiles.
The higher taxes on clothing will pose a particular challenge for fast-fashion group Shein, which is fighting for a listing in London. The Nanjing-based company has not yet received permission from Chinese authorities to sell shares abroad.
The US-listed depositary receipts of Temu parent PDD Holdings closed 2.4 percent lower in New York on Friday, while those of AliExpress parent Alibaba fell 0.9 percent. In anticipation that Washington would close the legal loophole, the companies have begun shipping and storing more of their products locally.
Kim Glas, chair of the industry association National Council of Textile Organizations, welcomed the Biden administration’s announcement, saying existing rules “reward Chinese e-commerce platforms and fraudsters with a free trade agreement.”
“We also stress the need for Congress and the administration to close this catastrophic legislative loophole once and for all in the coming weeks,” she said.
The US move follows similar concerns in the European Union, where Brussels is scrutinising tax exemptions in the face of a similar flood of Chinese packages.
Temu said its “growth does not depend on the de minimis policy” and was reviewing the rule proposals, while Shein said “we look forward to working with all stakeholders on the reform.” Alibaba did not immediately respond to a request for comment.
“American workers and businesses can outperform anyone else on a level playing field, but Chinese e-commerce platforms have been evading tariffs for far too long by abusing the de minimis exemption,” said U.S. Commerce Secretary Gina Raimondo.
