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The Biden administration is moving to close a trade loophole used by platforms like Temu, Shein and AliExpress to flood the US with cheap Chinese products.
The China-founded ecommerce groups have supercharged their growth by shipping cheap packages direct to American consumers by air and claiming what is known as the de minimis exemption to skip paying import tariffs on the shipments.
But the White House on Friday proposed new rules that would exclude a wide array of goods from being able to claim the exemptions, which extends to shipments of less than $800 in value. The proposed regulations will also make claiming duty free status more complex.
The US said the number of shipments entering the country via the de minimis rule had jumped from about 140mn a year a decade ago to more than 1bn a year today. Officials said the vast number of parcels made it harder to block shipments of faulty products and illegal drugs like fentanyl.
The Biden administration’s proposed rules, which will go through a public comment period before being finalised, threaten the business model that the Chinese groups have used to undercut and gain market share from online retailer Amazon.
Amazon sellers typically ship their goods in bulk to its warehouses, forcing them to pay import taxes, which became more expensive during the Trump administration when a large swath of Chinese imports were hit with higher tariffs.
The new US rules aim to ensure products that ship direct-to-consumer cannot avoid the higher duties, which the White House said covered 40 per cent of imports from China, including 70 per cent of textiles.
The higher taxes on clothing will be a particular challenge for fast-fashion group Shein, which is vying to list shares in London. The Nanjing-founded company has yet to receive permission from Chinese officials to sell shares abroad.
US-listed depository receipts in Temu parent PDD Holdings closed 2.4 per cent lower in New York on Friday, while those in AliExpress parent Alibaba dropped 0.9 per cent. The groups have begun to ship and warehouse more of their products locally in expectation that Washington would close the loophole.
Kim Glas, head of the National Council of Textile Organisations trade association, applauded the Biden administration’s announcement and said the existing rules “rewards Chinese ecommerce platforms and cheaters with a free trade agreement”.
“We also underscore the need for Congress and the administration to immediately eliminate this disastrous loophole once and for all in the coming weeks,” she said.
The US action follows similar concerns in the European Union, where Brussels is scrutinising the tax-free exemptions amid a similar onslaught of Chinese parcels.
Temu said its “growth does not depend on the de minimis policy” and that it was reviewing the rule proposals, 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 outcompete anyone on a level playing field, but for too long, Chinese ecommerce platforms have skirted tariffs by abusing the de minimis exemption,” US commerce secretary Gina Raimondo said.
