American retailers have been greatly affected by the rise of e-commerce, which has disrupted their traditional business models. However, they now face a new challenge from a long-standing trade rule that gives their e-commerce competitors, many of which are based in China, an unfair advantage.
The rule in question, known as de minimis, allows companies to import packages worth less than $800 into the United States without paying customs duties and fees. Around three million de minimis shipments enter the US daily, with approximately half of them being textile and apparel products.
Critics argue that this rule puts American companies at a disadvantage. They claim that Chinese-founded retailers like Shein and Temu can ship merchandise directly from their overseas warehouses to customers’ homes, with most of these packages being below the $800 threshold. In contrast, products made overseas and shipped to US retailers in bulk, stored in warehouses, and then shipped to customers are less likely to fall under the $800 limit. (Shein recently opened an Indiana distribution center in 2022 to store inventory from overseas before shipping to customers.)
Another concern raised by critics is that the de minimis rule creates an unchecked channel for goods potentially made by forced labor to enter the US.
The House Select Committee on the Chinese Communist Party published a report in June stating that Temu and Shein combined likely account for over 30 percent of all de minimis imports to the US.
US retailers are calling for a change to this rule, as they believe it may prompt companies to relocate their warehouses and the associated jobs outside of the US.
Both Shein and Temu have expressed their position on the issue. Shein stated that import compliance remains a priority for them and that the de minimis provision is not crucial to their business success. Shein’s executive vice chairman also expressed the company’s eagerness to work with lawmakers to reform the de minimis rule. Similarly, a Temu spokesperson reiterated that the company’s growth does not depend on the de minimis policy and they are supportive of policy adjustments that align with consumer interests.
The de minimis rule played a significant role in the financial difficulties faced by wedding retailer David’s Bridal, according to its CEO Jim Marcum. David’s Bridal filed for bankruptcy in April, the second time in five years, and stated that it paid around $20 million in fees to US Customs in 2022. In contrast, China-based competitors shipping directly to customers paid nothing. Marcum estimated that over six years, David’s Bridal paid around $100 million in duties that could have been invested in modernizing its business.
Ron Sorini, a lobbyist and trade expert working with a group of 20 US retailers seeking to change the de minimis entry law, pointed out that the rule creates an incentive for companies to move their distribution offshore.
The Ship Safe Coalition, a group of US retailers, has proposed a change to expand the application of de minimis to US distribution centers located in foreign trade zones. In these zones, companies are not required to immediately pay duty fees for imported products. Instead, the fees are paid when the products are shipped to customers. Although this delay helps manage cash flows, products shipped from warehouses in foreign trade zones are not exempt from fees if their value is below $800, unlike products shipped from foreign warehouses.
Ron Sorini emphasized the need for parity and stated that maintaining the status quo would pose significant problems for US retailers and jobs.
However, not all US retailers support the Ship Safe Coalition’s proposal. Kim Glas, the president of the National Council of Textile Organizations, supports a bill introduced in June that would exclude “nonmarket economies” like China and Russia from using the de minimis exception. She believes it would be more effective to limit the use of de minimis rather than expanding its application to retailers in foreign trade zones. Glas even suggests that the administration should use its executive authority to separate all e-commerce shipments from receiving de minimis treatment.
The American Apparel & Footwear Association, representing over 300 US companies, is collecting input from its members to publish a policy recommendation soon.
“While it may be complicated — and too complicated — for some people in Congress to figure out, it is not too complicated for people in business to figure out,” said Peter Bragdon, the general counsel at Columbia Sportswear and a member of the Ship Safe Coalition. “People are taking advantage of it, and it’s having an effect on people, on businesses.”