China’s online retailers Shein, Temu in focus as US aims to plug trade “loophole”

By David Lawder

(Reuters) -The Biden administration said on Friday it was moving to curb low-value shipments entering the U.S. duty-free under the $800 “de minimis” threshold that has been exploited by Chinese e-commerce firms such as Shein and PDD Holdings’ Temu.

White House officials said they will propose a new rule to deny the exemption to packages that contain low-value goods subject to Section 301 tariffs on Chinese goods, Section 232 tariffs on steel and aluminum products and Section 201 on “safeguard” tariffs on products including solar products and washing machines.

The proposed trade rule includes the need for new information disclosure for small packages to help U.S. Customs and Border Protection agents to better identify contents for illicit or unsafe products such as precursor chemicals that can be made into the deadly opioid fentanyl.

“American workers and businesses can outcompete anyone on a level playing field, but for too long Chinese e-commerce platforms have skirted tariffs by abusing the de minimis exemption,” said U.S. Secretary of Commerce Gina Raimondo.

The announcement comes two days after Democratic lawmakers urged President Joe Biden to use executive powers to close the de minimis provision, calling it a “loophole” that allowed Chinese imports to evade tariffs and ship narcotics without customs inspection.

The exemption has been part of the U.S. trade law since 1930 to accommodate individual travelers, but the threshold was raised to $800 from $200 in 2015 to help small businesses, including sellers on e-commerce platforms such as eBay (NASDAQ:).

Packages under the limit enter duty-free and with less customs scrutiny as long as they are addressed to individuals’ residences.

The volume of packages under the $800 threshold has exploded to over one billion last year from around 140 million a decade ago, White House officials said, attributing most of the growth to Chinese e-commerce firms.

“One billion is too high a volume for our officials to target and block that are unsafe…. or violate our laws,” a senior Biden administration official said.

“A big source of that volume is coming from Shein and Temu and we are very concerned about large foreign companies using the loophole at such scale and volume that we believe amounts to abuse,” the official said.

Reacting to the U.S. move, Shein reaffirmed last year’s comments from its Executive Chairman Donald Tang calling for de minimis reform “to create a level, transparent playing field – where the rules are applied evenly and equally”.

Shares of Temu-owner PDD Holdings fell about 3% even though Temu said its growth does not depend on the exemption. “We are reviewing the new rule proposals and remain committed to delivering value to consumers,” its spokesperson said.

If enacted, the rule might spark market share gains among U.S. retailers that serve low- and middle-income households, such as dollar stores, according to Jason Benowitz, senior portfolio manager at Segall Bryant & Hamill.

U.S. textile manufacturers blame the exemption for allowing low-value clothing packages to skirt U.S. Section 301 tariffs, which cover some 70% of large-scale Chinese textile and apparel imports.

“The drastic increase in de minimis shipments has made it increasingly difficult to target and block illegal or unsafe shipments coming into the US through this pathway,” White House Deputy National Security Adviser Daleep Singh said.

“That’s why the administration is starting a regulatory process to curtail de minimis overuse and abuse.”

The goal of the new rules is to reduce de minimis shipments to a more manageable level to better screen packages, a senior administration official said.

Another proposed rule would require such packages to contain product tariff codes and other information to help better identify suspect shipments.

It was unclear how quickly the proposed rules could be implemented as they would require public comment periods before they are finalized.

Administration officials said they are working with lawmakers to pass reforms to the trade provision for blanket exclusions of certain import-sensitive products.

The action was announced on the same day the Biden administration locked in steep U.S. tariff increases on some $18 billion worth of Chinese imports, including 100% duties on electric vehicles, 50% on chips and solar cells and 25% on lithium-ion batteries, steel and aluminum.