US bid to kill de minimis targets China – and American consumers

In mid-September, the Biden-Harris administration said it would use executive authority to kill the so-called de minimis loophole, a law that allows shipments up to US$800 to enter the US duty-free.

The White House, from where Vice President Kamala Harris is waging a neck-to-neck campaign against Donald Trump to win the Presidency in elections this November, made plain its intended target: China’s e-commerce juggernauts, on which Washington lays blame for using the "loophole" to sidestep tariffs on hundreds of millions of de minimis shipments a year.

E-commerce with Chinese characteristics

The de minimis provision, known officially as Section 321 of the Tariff Act of 1930, was designed for a very different world. The original intent was to avoid inconveniencing US tourists carrying souvenirs home.

With the rise of seamless global e-commerce, de minimis provisions in the US and indeed globally play an important role in exempting low-value goods from unnecessary paperwork and costs, thereby fueling the growth of small and medium-sized exporters.

Once a relatively obscure area of US trade law, de minimis has become widely politicized as a loophole used by Chinese e-commerce giants, among them notably Temu and Shein, which ship discounted clothing, cosmetics, and all manner of consumer goods worldwide. Like a growing number of other Chinese-origin multinationals, Shein has made efforts to internationalize its corporate identity by incorporating its headquarters in Singapore.

The US$800 de minimis threshold, which is very high relative to most other jurisdictions, was also particularly attractive given the business models of Chinese e-commerce. Unlike Amazon and other retail giants that agglomerate goods from bulk shipment in local warehouses, Temu and Shein typically ship directly to consumers. The result is that a much larger proportion of their sales benefit from de minimis.

Covid-19 lockdowns impelled the extraordinary growth of e-commerce and de minimis shipments. CBP data shows that 1 billion de minimis shipments worth US$54 billion entered the US in 2023, double the level in 2019.¹

Roughly 60% of these shipments originate from China, with over half of these coming directly from Temu and Shein.

Bargain basement runs afoul of geopolitics

The proposed US executive actions, backed by calls for legislation, are to be implemented after a period for public comment period. They would render ineligible for de minimis any items subject to tariffs under existing US law, irrespective of value.

The White House has noted that current tariff regimes cover 40% of US imports and 70% of Chinese apparel and textile imports, a major focus of the executive action.

But anti-China sentiment now runs so deep that de minimis has been blamed for everything from the proliferation of fentanyl to goods produced using forced labor.

Some of the arguments might be defensible. However, a more realistic explanation for the White House decision, which came after years of pressure to end de minimis from antitrade and anti-China sentiment, is the protectionist impulses mounting in the run-up to a key election.

The emergence of organized labor targeting cheap Chinese goods was always going to be political catnip in an election that will be won or lost in predominantly rust-belt swing states.

The administration’s official announcement offers an even bigger claim, saying that American textile and apparel producers play a "critical role in the US defense industrial base".³ The implicit rationale is that the US military cannot be left dependent on foreign, and particularly Chinese, clothing. It’s hard not to detect a faint whiff of Dr. Strangelove in the declaration.

However, with trade once again the whipping boy in a difficult election, the administration has reverted to broad protectionism. The White House blocking of a bid by Japan’s Nippon Steel to acquire US Steel, the jettisoning of the trade pillar of Biden’s signature Indo-Pacific Economic Framework for Prosperity, and the floundering initiatives to elevate cooperation with the European Union on critical minerals, are all cases in point.

Neither political campaign in the elections has been able to articulate a coherent vision of which goods should be made locally and which should be sourced from friendly jurisdictions, or even which jurisdictions really are "friendly". A considerable proportion of manufactured goods are irrelevant to national security. Most textiles surely are as strategic as yoghurt, which France 20 years ago deemed so to prevent a foreign takeover of dairy giant Danone.

Commerce Secretary Gina Raimondo has often defended protectionism with the claim that "American workers and businesses can outcompete anyone on a level playing field". There are surely some sectors in which competition is simply not worth the candle.

Conclusion

The overriding reason Temu and Shein products have been so popular is because of their price point. The decision to limit de minimis treatment is particularly counterintuitive given the political dominance of cost-of-living concerns. 

The biggest winners of the executive action are Amazon and similar US retailers – not always pro-labor, it has to be said – as well as remnant textile companies that may enjoy a marginal reprieve.

If the US is indeed in a competition to win the 21^st century, it sometimes isn’t clear if it is planning to win the race or just the votes.

This article was amended on 1 October to correct an attribution to Shein as originally having a domestic focus.

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[1] Garland, "What would the demise of de minimis mean for supply chains", Supplychaindive.
[2] https://www.nber.org/papers/w32607
[3] Fact Sheet op. cit.

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