Congress Aims to Close Tariff Loophole Used by Chinese E-Commerce Companies

Shein pop-up in Houston, TX. (Shein)

The Lede: Two bills have been introduced this week that would shut Chinese e-commerce companies out of a key tariff exemption in the customs process

What We Know:

U.S. lawmakers are working on two bills that would affect the de minimis tariff exemption that currently allows e-commerce sellers including the Chinese fast fashion retailer Shein. Currently, companies importing packages to the U.S. valued under $800 are not charged duties, taxes, or fees.
The De Minimis Reciprocity Act and a separate bill called the Import Security and Fairness Act both aim to eliminate the de minimis tariff exception for China on the grounds of preventing cheap and counterfeit goods from entering the U.S., stopping the trafficking of illicit drugs like fentanyl, and not supporting goods made with forced labor. China and Russia would also be labeled ineligible to use the de minimis tariff exemption because they are considered non-market economies. The bills would also aim for U.S. customs authorities to collect more information on shipments such as a description of the article, the article’s country of origin, and the identity of the shipper and importer.
The bipartisan sponsors of these bills argue that they need to eliminate the loophole in order to level the playing field for American companies that pay fees and tariffs associated with importing goods made for them in other countries.

The Background: Shein has become popular among U.S. shoppers for its ultralow prices. Critics claim that the retailer has copied designs and used cotton in its clothes and forced labor from Xinjiang. Shein has denied these claims. In 2016, the de minimis limit was raised to $800 from $200. Many online retailers have benefited from the tariff exemption by shipping small batches of orders directly to shoppers from overseas. In contrast, many traditional retailers usually import large batches of their products into the U.S., store the products in warehouses, and then distribute them to online buyers.

Likely Outcomes:

Although these two bills face a long road to passage, the bipartisan support for them demonstrates the adversarial nature of the U.S. Congress toward Chinese manufacturing. Meanwhile, U.S. consumers have enjoyed purchasing products from China through these e-commerce stores at extremely low prices. The passage of laws that close the de minimis exemptions would make these e-commerce stores somewhat less competitive and force them to raise the prices of their products, passing the costs on to U.S. consumers.
The implementation of a more robust collection process for information on inbound packages from China may give the U.S. government insight into goods that may be the subject of future trade restrictions in the continued rivalry between the superpowers.

Quotables:

“Shein is probably the most obvious example of a company that has exploited the de minimis loophole the most. Maybe there’s a modest financial savings to consumers, but at what price? I just think that we’ve made a determination that we’re going to respect environment, human rights and product safety, even if it’s a cost of a few more pennies.” – Earl Blumenauer, Democrat from Oregon in the U.S. House of Representatives

“China exploits our capital markets and uses slave labor to undercut American businesses. It is bad for our country to let China flood our country with duty-free packages using the de minimis exception.” – Marco Rubio, Republican from Florida in the U.S. Senate

“A trade loophole is allowing Chinese companies to import goods in the U.S. with no oversight – letting them bring in cheap, counterfeit goods that undercut American manufactures and traffic drugs into our communities. Our bipartisan bill will close this loophole to create a level playing field for our Made in America manufactures, curb the illicit drugs like fentanyl from coming into the country, and help ensure Americans are not supporting goods made with forced labor.” – Tammy Baldwin, Democrat from Wisconsin in the U.S. Senate

Good Reads:

China e-commerce shipments would lose US tariff exemption under proposed law (Reuters)

Bipartisan Proposals Would Hit E-Commerce Like Fast Fashion (NYT)

Cassidy, Baldwin Introduce Bill to Stop China from Taking Advantage of Lax U.S. Trade Laws (Cassidy.senate.gov)

Brown, Rubio, Blumenauer, Dunn Introduce Bipartisan, Bicameral Bill to Protect Ohio Businesses from Unfair Trade Regulations (Brown.senate.gov)