The White House issued an executive order on Monday that reduced the tariffs on “de minimis” shipments from China to 54 percent or $100, whichever is less.
President Donald Trump imposed a tariff of 120 percent or $200 on de minimis shipments in February.
The de minimis exemption was introduced in 1938 to ease the financial and regulatory burden on shipping small packages into the United States. The threshold for the exemption was quadrupled during the Obama administration, from $200 to $800 — a much higher threshold than in most countries around the world.
The dramatic increase in the de minimis threshold created enough room for entirely new industries to appear, and those industries were utterly dominated by China. Thanks to Internet shopping and electronic payments, companies like Shein and Temu began shipping gigantic volumes of cheap merchandise directly to American consumers without any need to maintain distribution centers in the United States.
China’s micro-shipment companies have raked in billions of dollars in profit. In fact, Reuters noted on Tuesday that direct-to-consumer sales accounted for $240 billion of China’s exports last year, which adds up to seven percent of China’s overseas sales and 1.3 percent of its gross domestic product (GDP).
China ruled the “fast fashion” industry, partly because it uses slave labor to manufacture its goods. The de minimis exemption became controversial because Chinese companies used the rule to evade legal scrutiny under the Uyghur Forced Labor Prevention Act (UFLPA). De minimis shipments have also been implicated in the fentanyl trade as batches of precursor chemicals are shipped from China to the United States in small parcels.
Chinese executives told Reuters the reduced 54 percent tariff level might still be too high for their business model, which thrives on extremely low prices and fast shipping. Longer time periods Americans may now have to wait for their products could prove insurmountable.
“If people are buying clothes on Shein and are told the product will arrive one month later, who will buy that?” remarked Jianlong Hu, CEO of a Chinese e-commerce consulting firm called Brands Factory.
“I think companies that were part of the cross-border boom from China will still want to diversify their business away from the U.S. as much as they can. Everyone has already realized if you depend on the US, it’s too risky,” Hu said.
