Potential blow to Shein and Temu in the US?
The White House just announced plans to stop the abuse of the 'de minimis' rule, which allows packages valued less than $800 to be shipped from outside the nation directly to consumers without import tariffs. In recent years, a tidal wave of such packages has started coming in, shipped by Temu and Shein.
For decades, the 'de minimis' rule had a $200 threshold, but the Obama administration increased it to $800. The rule was supposed to make it easier for merchants to sell cross-border to US consumers and help companies like eBay and Amazon. It also benefitted drop shippers, who had goods shipped directly from China.
But that was before the explosion of cross-border e-commerce from China. Now, the rule isn't helping US businesses; it is hurting them because of the new competition from China. Chinese merchants don't need US retail, wholesale and marketplaces anymore to sell to US consumers. When Chinese companies benefited from the rule, it became a 'loophole'. 'Hold on, this is not what 'de minimis' was meant for', they must be thinking at the White House.
Of course, there are also legit worries about product quality and safety, just like in Europe.
The Biden administration is now proposing to 'exclude a wide array of goods from being able to claim the exemptions'. It remains to be seen what this means exactly. The old $200 threshold won't make much difference since the average Temu order value of shipments from China is still less than $50. Only a total abolishment of the threshold for these goods could hurt Temu and Shein.
But Temu has anticipated this and has been working on various strategies to counter these potential measures. These include:
- shifting share of sales away from the US to be less dependent on that market
- sneakily transshipping through other countries like Mexico
- implementing the 'semi-managed model' in which merchants import goods in bulk and ship from local warehouses
- plans to divide potential cost increases because of tariffs between the consumer, merchant and platform
Details on this and much more can be found in our linkedin.com/feed Temu Watch series.
