US moves to crack down on de minimis shipments

What’s happened?

On September 13th the Biden administration introduced a new executive action targeting low-cost Chinese e-commerce platforms such as Shein and Temu. The “notice of proposed rule-making” is not yet in effect, but aims to tighten regulations under the de minimis exemption (which exempts imports priced at under US$800 from taxes). The administration also calls for boosting US textile and apparel procurement across agencies and intensifying enforcement against illicit imports, including expanding the Uighur Forced Labor Prevention Act entity list.

Why does it matter?

The new rules, if confirmed, will exclude from de minimis exemptions all products currently subject to Section 201, 232 and 301 tariffs; require additional data for de minimis shipments; and mandate certificates of compliance. These actions have implications for cross-border e-commerce firms and US consumers. Shein and Temu have rapidly expanded their market share in the US with a direct-to-consumer business model that uses the de minimis loophole to keep prices significantly lower than more established peers. The volume of these de minimis shipments has increased significantly, from about 636.7m in 2020 to 1bn in 2023. The supply of these items has kept prices low for US consumers.

The move is aimed at closing this loophole by addressing “unfair competition” from China’s e-commerce giants, which, according to the Biden administration, account for 70% of the textile and apparel imports subject to Section 301 tariffs. However, the US has not proposed lowering the de minimis threshold, which, at US$800, is notably higher than other jurisdictions.

Although this move bypasses the US Congress (legislature), it serves as a provisional measure designed to accelerate congressional action. This supports our forecast that the steep rise of low-priced textile imports from China to the US will place Chinese online retailers squarely in the government’s crosshairs. The White House’s readout says it is “ready to work with Congress” to pass comprehensive de minimis reform legislation by end-2024, and lays out a series of recommendations that include removing Section 301 (includes textiles, apparel and footwear), 201 (mostly solar panels), and 232 (steel/aluminium) items from exemptions and passing a counter-fentanyl proposal.

The moves align with a bipartisan bill proposed in August, the FIGHTING for America Act, which would empower US Customs to levy higher fees, increase penalties, and add a US$2 fee per de minimis shipment (designed to cover increased enforcement costs). As a recent proposal, the bill will still take time to move through Congress, and its passage is far from guaranteed—only five of the 574 bills introduced in Congress since 2019 have been signed into law. Nevertheless, the fact that other similar bills have been introduced by Congressional Republicans (“End China’s De Minimis Abuse Act”) and Democrats (“Import Security and Fairness Act”) since mid-2023 indicates strong political will to close this loophole, suggesting that tighter restrictions over de minimis shipments—particularly from China—will probably materialise in the coming quarters. This will be moderately inflationary for some US consumers, particularly for lower-to-medium income households, who tend to be bigger consumers of products shipped via these platforms.

Even without comprehensive legislation, mounting domestic political pressure on US lawmakers to project a “tough on China” image will keep US policy hawkish towards China through the remainder of 2024, and into early 2025. After the US House of Representatives (the lower congressional house) failed to bring legislation on de minimis to a vote during “China Week,” held from September 9th-12th, the Biden administration may have sensed an opportunity. The administration announced the same day that its plan to increase tariffs on US$18bn of imports from China—specifically over electric vehicles, but also solar cells, lithium ion batteries and other products—would take effect on September 27th.

What next?

The US’s move will have implications for cross-border e-commerce, accelerating a global shift to restrict low-value imports. Several economies have already taken action to protect local markets, with the EU and South Africa proposing to eliminate de minimis altogether. Meanwhile the US will intensify its scrutiny of Chinese goods being transshipments via third markets, particularly through Canada and Mexico, as Chinese companies attempt to circumvent tariff restrictions.

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