US Trade Loophole Closure to Increase Prices for Online Shoppers
Fast-fashion retailer Shein and online dollar-store Temu, both of which sell products ranging from toys to smartphones, have grown rapidly in the US thanks in part to the "de minimis" exemption, which has enabled them to keep prices low. However, US President Donald Trump’s decision to shut a trade loophole that has been used to ship low-value packages duty-free from China is likely to increase prices for American shoppers.
Under the de minimis provision, companies like Shein and Temu have been able to import goods into the US duty-free, allowing them to offer low prices to consumers. According to the US congressional committee on China, Temu and Shein together accounted for more than 30% of all packages shipped to the US each day under this provision.
However, the de minimis exemption is no more, and experts predict that this will lead to price increases for online shoppers. "For companies like Temu and Shein, this is obviously a very big deal because de minimis was one of the levers they used to be able to offer these low prices as well as ensure speed of products entering the country once they were shipped," said Juozas Kaziukenas, CEO of e-commerce data firm Marketplace Pulse.
The impact will be significant, with companies like Temu and Shein facing a potential 5% margin difference due to the closure of the loophole. This could result in increased prices for consumers, particularly for small and medium-sized online retailers that have fewer resources to absorb the increased costs and adapt their supply chain.
Adapting to the New Reality
Both Temu and Shein have taken measures to mitigate the impact, such as sourcing more products from outside China, opening US warehouses, and bringing more US sellers on board. "So, the lifting of de minimis will not impact 100% of the products they sell in the US," said Kaziukenas. "It will have an impact, but it’s not going to be the end of the reign of Shein and Temu."
Conclusion
The closure of the de minimis loophole is likely to have a significant impact on online shoppers, with prices increasing for products from companies like Shein and Temu. While these companies have taken steps to adapt, the change is likely to be particularly challenging for small and medium-sized online retailers that source from China and have fewer resources to absorb the increased costs.
Frequently Asked Questions
Q: What is the de minimis exemption?
A: The de minimis exemption is a provision in US trade law that allows companies to import goods into the US duty-free, as long as the value of the goods does not exceed a certain threshold.
Q: What is the impact of the de minimis exemption closure?
A: The closure of the de minimis exemption is likely to increase prices for online shoppers, as companies like Shein and Temu will have to pay duties on imports, which will be passed on to consumers.
Q: How will small and medium-sized online retailers be affected?
A: Small and medium-sized online retailers that source from China and have fewer resources to absorb the increased costs and adapt their supply chain are likely to be particularly impacted by the closure of the de minimis exemption.
