Photo credit: www.cnbc.com
Changes in Tariffs Impacting Budget Online Retailers
In a significant move affecting the landscape of online retail, President Donald Trump has introduced tariffs targeting Canada, Mexico, and China, which are crucial trading partners for the United States. This decision is particularly significant for budget retailers like Temu and Shein, whose growth has been bolstered by a specific trade provision.
On a recent Saturday, Trump signed executive orders that impose a 25% tariff on imports from Canada and Mexico, while goods from China will be subjected to a 10% tax. Notably, energy resources from Canada will receive a reduced 10% tariff. These new duties are expected to come into effect shortly.
One key aspect of these tariffs is the suspension of the “de minimis” trade exemption. This provision, which has been in place since the 1930s, allows for packages valued at less than $800 to enter the U.S. without incurring duties. However, this exemption has faced scrutiny as its popularity grew, especially during recent years. The Biden administration has expressed concerns about its overuse, stating that it aids Chinese e-commerce companies in offering lower prices and underscoring the product safety issues arising from minimal documentation and inspection for such shipments.
Data from the U.S. Customs and Border Protection shows that the number of de minimis shipments processed in 2024 surpassed 1.3 billion, a significant increase from 139 million in 2015. This loophole has notably benefited low-cost e-commerce platforms like Temu and Shein, which have leveraged this exemption to provide a wide array of affordable products, ranging from smartwatches to inexpensive footwear.
In an effort to attract budget-conscious consumers, both Shein and Temu have ramped up their digital marketing strategies over the past few years. As a result, Temu emerged as the most downloaded free app in the U.S. in 2024, followed closely by Shein in the twelfth spot.
Despite the soaring popularity of these platforms, representatives from Temu, Shein, and Alibaba did not respond to requests for comments regarding the tariff implications. Nevertheless, Temu has previously denied that its growth solely depends on the de minimis provision. Meanwhile, Shein has emphasized that adherence to import regulations is a priority, with its executive chairman advocating for the reform of de minimis, suggesting it requires a complete overhaul.
Additionally, the rise of these budget retailers has prompted Amazon to launch its bargain outlet known as Haul. This platform allows third-party sellers to ship products directly from China, taking advantage of the same de minimis trade rule. Reports indicate that Amazon might rely on this exemption to help facilitate the importation of goods sold on Haul, although the company has not publicly confirmed this strategy.
Interestingly, Amazon, eBay, and Etsy may find new opportunities arising from the clampdown on the de minimis loophole, as their marketplaces enable third-party sellers to compete directly with retailers like Temu and Shein. Amazon’s marketplace, which represents around 60% of products sold on the site, has long served as a conduit for Chinese manufacturers, with many observers suggesting that these sellers now outnumber their American counterparts on the platform.
In response to the challenges posed by potential tariff changes, Temu and Shein have begun adapting their strategies. For instance, Temu has started to incorporate Chinese sellers who maintain inventory in U.S. warehouses, allowing for quicker shipping to American consumers. Similarly, Shein has expanded its operational footprint within the U.S., establishing distribution centers and logistics hubs to enhance overall delivery efficiency.
WATCH: Amazon Haul takes on Temu to bring shoppers cheap goods from China
Source
www.cnbc.com