The affordability that has made Chinese-linked e-commerce companies Shein and Temu popular with American consumers may soon decrease if the Biden administration limits their use of a trade law loophole. These companies, known for their low-cost $5 T-shirts and $10 sweaters, could experience a price increase of at least 20% if changes are made to the de minimis provision, as stated by a spokesperson for the Republican majority of the House Select Committee on the Chinese Communist Party. The Committee arrived at this estimate following more than a year of investigations into Shein and Temu.
Neil Saunders, a retail analyst and managing director of GlobalData, concurred that the policy change would likely result in higher prices, but could not specify the extent of the increase. He noted that removing the de minimis exemption would raise the cost of products on marketplaces like Shein and Temu. Consequently, these companies may lose some market share or see slower growth, potentially prompting them to shift towards higher-priced items.
On Friday morning, the Biden administration revealed plans to prohibit overseas shipments of products subject to U.S.-China tariffs from qualifying for the de minimis exemption. This exemption, in place since the 1930s, allows packages valued under $800 to enter the United States without import duties and with less scrutiny than larger shipments.
This announcement follows over a year of scrutiny from lawmakers, particularly the House Select Committee on the CCP. Shein and Temu declined to comment to CNBC about potential price increases due to the proposed changes but disputed claims that their low prices rely on the de minimis exemption, attributing their affordability to their business models.
A Shein spokesperson mentioned that the company supports de minimis reform and has joined a voluntary pilot program with U.S. Customs and Border Protection, agreeing to provide more data about its packages and shipments.
In recent years, Shein and Temu have gained significant popularity among U.S. consumers with their low prices and ability to quickly introduce trending styles. Shein’s annual revenue exceeds $30 billion, though Temu’s sales figures are not clear. Temu’s parent company, PDD Holdings, reported $34.9 billion in revenue for fiscal 2023, marking a 90% year-over-year increase.
As these companies have become favored shopping destinations, they have gained market share from competitors like H&M, Zara, Target, Walmart, and Amazon. Should Shein’s prices increase by 20%, the cost of their products would align more closely with those of their competitors, potentially making it tougher to compete.
For instance, as of June 1, the average price of a dress on Shein was $28.51, significantly lower than the $40.97 average at H&M and $79.69 at Zara. A 20% price increase would raise Shein’s average dress price to $34.21, closer to H&M’s average.
Even if the Biden administration’s proposal does not result in a 20% price hike, this along with Shein’s longer shipping times could lead some consumers to choose retailers closer to home. According to Neil Saunders, while reforming the de minimis rules would create a fairer marketplace, it would ultimately increase costs for consumers.
The committee began investigating Shein and Temu last year for labor issues in their supply chains and for exploiting the de minimis exemption, claiming in a June 2023 report that neither company paid import duties in 2022. Shein contested this, stating it paid millions in import duties in 2022 and 2023, though it acknowledged finding cotton from banned regions in its supply chain and is working to address the issue. Temu did not respond to inquiries about labor practices in its supply chain.
A spokesperson for the committee emphasized that most Shein and Temu products fall under the de minimis exception, allowing them to bypass U.S. Customs scrutiny. The spokesperson urged Congress to make de minimis reform a priority to ensure these companies improve their compliance practices.
As scrutiny has intensified, Shein’s prospects for a U.S. public offering have diminished. While an outright ban akin to that imposed on social media company TikTok is unlikely, numerous lawmakers have called for the U.S. Securities and Exchange Commission to block Shein’s IPO and have targeted the de minimis exemption to stymie the company’s growth.
Following over a year of challenges, Shein has now shifted its focus to a potential IPO in London. In June, CNBC reported that Shein had confidentially filed for a public listing in London amid backlash in the U.S. The impact of the proposed de minimis changes on Shein’s IPO plans remains uncertain.
