New rules aimed at stopping alleged abuse of U.S. trade loophole target Shein and Temu, according to Biden.

• The Biden administration has proposed a new rule that would prevent products affected by U.S.-China tariffs from being granted a special customs exemption.
• Packages worth less than $800 can enter the US with minimal inspection due to the de minimis loophole.
• The surge in de minimis shipments can be attributed mainly to Chinese-based online retail platforms such as Shein and Temu, according to officials.

On Friday, the Biden administration unveiled new measures to address the misuse of a decades-old trade law that allows low-value goods to enter the US without paying customs duties and fees.

A new rule proposal has been made to exclude overseas shipments of products subject to U.S.-China tariffs from receiving the special customs exemption.

The de minimis provision in trade law enables packages worth less than $800 to enter the US with minimal inspection. Over the past ten years, the number of de minimis shipments has surged from 140 million to over a billion, according to a White House estimate.

The rise in small shipments has made it harder to detect and prevent illegal or hazardous imports into the U.S., according to Deputy National Security Advisor for International Economics Daleep Singh, who spoke to reporters on a Thursday call about the upcoming measures.

The main cause of the explosion in de minimis shipments is attributed to a few Chinese-linked online retail giants, such as Shein and Temu, who use the exemption to ship large quantities of clothing and inexpensive household goods directly from factories in China to American customers.

Each individual package usually costs less than $800, making it eligible for the de minimis exemption.

New eligibility restrictions for products subject to tariffs under Sections 301, 201, and 232, as proposed Friday, could disrupt this business model.

According to Daleep, the implementation of section 301 tariffs on approximately 70% of Chinese Textile and Apparel imports will significantly decrease the number of shipments that qualify for the de minimis exemption.

The White House also revealed plans to introduce a new rule that mandates specific, additional information for de minimis shipments, such as the 10-digit tariff classification number and the individual claiming the exemption, as stated in a fact sheet.

The Biden administration urged Congress to pass legislation to reform the existing de minimis rules.

In recent years, the de minimis exemption, a loophole in an obscure tariff law passed by Congress in 1930, has come under scrutiny by lawmakers who are concerned that it allows foreign retailers to evade tariffs and border scrutiny.

The report from the House Select Committee on the Chinese Communist Party stated that Shein and Temu are likely responsible for more than 30 percent of all packages shipped to the United States daily under the de minimis provision, and likely nearly half of all de minimis shipments to the U.S. from China.

Instead of importing containers of merchandise and sending them to U.S.-based warehouses for distribution, Shein and Temu directly ship their products to American consumers through their networks of Chinese suppliers.

Chinese retail giants have likely avoided tens of millions of dollars in import duties by utilizing the de minimis loophole.

According to the House Select Committee on the Chinese Communist Party, in 2022, Gap paid $700 million in import duties, H&M paid $205 million, and David's Bridal paid $19.5 million.

Shein and Temu, however, paid no import duties at all.

By not paying the high import duties that the US imposes on most Chinese textiles, apparel, and footwear, Shein and Temu are able to offer very low prices and beat their competitors who pay these duties.

The exemption allows Shein and Temu to import products made with slave labor without detection because the packages are not subject to the same level of scrutiny and testing.

Shein claims that its inventory-lite supply chain and overall business model enable it to provide low prices, and its pricing strategy is not linked to the de minimis exemption.

In the summer of last year, Donald Tang, the executive chairman of Shein, advocated for changes to the de minimis rule, stating that it required a complete overhaul to ensure fairness for all retailers. Despite this, the company's stance on de minimis remains unclear, and no specific reforms have been proposed.

The company has admitted that cotton from prohibited areas has been detected in its supply chain and is taking steps to resolve the problem.