The U.S. government is accelerating efforts to close an import loophole that has been taken advantage of by the ultrafast fashion retailers Shein, founded in China but currently headquartered in Singapore, and Temu, a subsidiary of the Chinese e-commerce platform Pinduoduo.
It is another strand of geo-political tensions between Washington and Beijing becoming woven into the fabric of U.S. business, this time affecting not U.S. tech companies and chipmakers but retailing behemoths like Amazon and Walmart, who use the same loophole.
An April report by the U.S.-China Economic and Security Review Commission (USCC) highlighted how Shein and Temu’s high-volume, small-order business model avoids import duties that other retailers pay by exploiting the de minimis import exemption.
Under this exemption, shipments to the United States valued below USD 800 are not subject to import duties. By value, over 10% of U.S. imports from China are covered under this rule. One estimate put the total value of de minimis imports from China at USD 188bn in 2022.
The USCC report argued that this distorted market competition.
The report also brought up several other problematic practices by these companies, including Shein’s parent company being fined nearly USD 2 million for not properly protecting user data, including credit card information, and Google suspended the Pinduoduo app from its Play Store in March for allegedly containing malware.
The report also accused Shein of being unable to demonstrate compliance with laws against forced labor, as well as health and safety rules, and noted the high number of copyright complaints it had received.
Congressional Response
In May, the U.S. House Select Committee on the Chinese Communist Party (CCP) asked Shein and Temu to provide pricing and shipping details on de minimis shipments, report the frequency with which U.S. customs authorities deny de minimis exports, and explain how they ensure the absence of forced labor from their production chains.
In June, Senators Bill Cassidy (R-LA) and Tammy Baldwin (D-WI) introduced legislation to counter the use of the de minimis exemption. Their bill:
- excludes Chinese companies in general from using the exemption;
- requires direct shipping to occur through private U.S. distributors (such as United Parcel Service and FedEx) instead of the public postal service; and
The use of private distributors is part of a bid to eliminate a loophole for Chinese companies stemming from arcane provisions of the UN-based Universal Postal Union treaty, which sets lower delivery rates for parcels from developing countries, a category to which China officially still belongs.
The same month, the House Select Committee on the CCP released its interim report, finding that Temu and Shein accounted for about one-third of de minimis parcels sent to the United States and around one-half of those from China.
Temu came under particular pressure. Committee Chairman Mike Gallagher accused it of doing “next to nothing” to remove forced labor from its supply chain, as it conducts no audits, has no compliance system and does not prohibit its third-party vendors from selling products made in Xinjiang. (Xinjiang is barely a less sensitive issue for Beijing than Taiwan and Hong Kong.)
Shein is lobbying heavily against these Congressional efforts.
- It has sought help from the American Apparel and Footwear Association to ensure that any new rules imposed apply equally regardless of a company’s nationality.
- More broadly, the company has spent close to USD this year on lobbying efforts and is getting support from within China. An article in Qiushi, the CCP’s leading theoretical policy journal, called for both public relations support for Xinjiang and retaliation against countries banning Xinjiang-origin products.
Beyond Shein
Many U.S. apparel and e-commerce companies will likely quietly resist stricter reporting and compliance requirements on their supply chains and closing the de minimus loophole, as this will increase their costs.
Where Shein was estimated to ship USD15bn worth of goods under the de minimis exemption in 2022, Amazon sold over USD113bn under this rule. Walmart, too, sold more goods under the exemption than Shein.
Lawsuits
The cut-throat competition between the Chinese companies has also led to a spiral of lawsuits:
- In December, Shein sued Temu, accusing it of misleading consumers by using the word Shein in its ads and running impostor Twitter accounts.
- Temu has now lodged a case of its own, accusing Shein of violating U.S. competition law by requiring exclusivity from their suppliers and using false copyright claims to require Temu content to be taken down.
These cases risk backfiring by spotlighting business practices that could easily be seen as disreputable by U.S. legislators and regulators, sharpening the will to legislate.
Sustainability
The most conspicuous absence in the political discussions about the companies is concern for sustainability. The vast environmental impact of ultrafast fashion (and household goods) businesses has not been a priority for U.S. legislators or most consumers, whose appetite for low-cost goods continues undimmed.
China is unlikely to take action against Shein or Temu on sustainability grounds. Beyond an unwillingness to be seen to be bowing to Washington’s criticisms, targeting the retailers’ supply chains and labor standards in China would require taking action against hundreds of subcontracting factories, often small and many with strong local political connections.
