US targets trade loophole exploited by e-commerce groups Temu and Shein

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The Biden administration is taking action to close a legal loophole in online retail that platforms like Temu, Shein and AliExpress are exploiting to flood the U.S. with cheap Chinese products.

China-based e-commerce groups have significantly increased their growth by shipping cheap items directly to American consumers by air and relying on a so-called de minimis exemption to avoid paying import duties on the shipments.

But the White House proposed new rules Friday that would exclude a wide range of goods from qualifying for exemptions, including shipments valued at less than $800. The proposed rules would also make applying for duty-free status more complicated.

The United States has said the number of packages entering the country under the de minimis rule has increased from about 140 million a year a decade ago to more than 1 billion a year now. Officials said the huge number of packages makes it difficult to block shipments of defective products and illegal drugs such as fentanyl.

The Biden administration’s proposed rules, which will go through a public hearing before being finalized, threaten the business model that Chinese groups have used to undermine and take market share from online retailer Amazon.

Amazon sellers typically ship their goods in bulk to the company’s warehouses, forcing them to pay import taxes, which have become higher under the Trump administration when much of China’s imports were hit with higher tariffs.

The new U.S. rules aim to ensure that products shipped directly to consumers do not escape higher tariffs, which the White House says cover 40% of imports from China, including 70% of textiles.

Higher taxes on clothing will be a particular challenge for fast-fashion group Shein, which is seeking a London listing. The Nanjing-based company has not yet received permission from Chinese officials to sell shares abroad.

U.S.-listed deposits of Temu parent PDD Holdings closed down 2.4% in New York on Friday, while those of AliExpress parent Alibaba fell 0.9%. The groups have begun shipping and storing more of their products locally, expecting Washington to close the loophole.

Kim Glas, head of the National Council of Textile Organizations trade association, praised the Biden administration’s announcement and said the rules “reward Chinese e-commerce platforms and scammers with a free trade agreement.”

“We also emphasize that Congress and the administration must immediately and once and for all close this disastrous loophole in the coming weeks,” she said.

The US move follows similar concerns expressed in the European Union, where Brussels is investigating tax exemptions for a similar influx of parcels from China.

Temu said its “growth does not depend on the de minimis policy” and that it was reviewing the proposed regulations, while Shein said “we look forward to working with all stakeholders on reform.” Alibaba did not immediately respond to a request for comment.

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