TLDR:
- US plans to tax packages under $800, closing a loophole used by Temu and Shein
- Alibaba and JD.com stocks dropped in Hong Kong following the news
- The move could reshape parts of the US retail market
- Temu and Shein claim their success isn’t dependent on the tax-free policy
- The crackdown aims to reduce tariff evasion and prevent illegal shipments
The United States government has announced plans to implement new rules that would close a tax loophole widely used by Chinese e-commerce companies like Temu and Shein.
This move could have significant implications for the US retail market and the operations of these fast-growing platforms.
Currently, the “de minimis exemption” allows products valued under $800 to be shipped directly to US consumers without customs declarations or duties.
This policy has been a key factor in the rapid growth of Chinese e-commerce platforms in the American market, allowing them to offer extremely low prices on a wide range of goods.
White House officials stated that the proposed rules aim to reduce tariff evasion and prevent the shipment of illegal items, including fentanyl-laced products.
The announcement has already impacted the stock prices of major Chinese e-commerce companies, with Alibaba and JD.com experiencing drops of about 2% in Hong Kong trading.
Temu and Shein, two of the most prominent beneficiaries of the current exemption, have responded to the news. Both companies stated that their success is not solely dependent on the tax-free policy and that they will focus on maintaining business efficiencies and customer satisfaction.
Shein, which is preparing for an initial public offering potentially valuing the company at over $60 billion, emphasized its unique on-demand business model.
The proposed changes could have far-reaching effects on the US retail landscape. Amazon, which has faced increasing competition from these Chinese platforms, is reportedly developing a discount marketplace for Chinese merchants to ship directly to US customers.
Other US-based retailers like eBay and Etsy might benefit from reduced competition, although they also have Chinese seller bases that could be affected.
Analysts estimate that Temu, a subsidiary of PDD Holdings, derives a significant portion of its business from the US market. In the first half of 2024, Temu is believed to have handled about $20 billion in gross merchandise volume, with approximately 40% coming from American consumers.
The move by the US government is not unexpected, as concerns about the ultra-fast-fashion industry have been growing globally. The European Commission has been critical of the sector since at least 2021, citing environmental concerns related to disposable clothing.
As the November elections approach in the US, scrutiny of Chinese-linked firms is intensifying. This regulatory change adds another layer of uncertainty for companies like Shein and Temu, which are already grappling with a consumer downturn in their home market of China.
The implementation timeline and specific details of the new rules have not yet been announced, leaving investors and industry observers in a wait-and-see mode.
