The popularity of Chinese-linked e-tailers Shein and Temu in the United States may soon see a price increase if the Biden administration changes the de minimis provision, which allows packages with a value of less than $800 to enter the country without import duties. Estimates suggest that prices could rise by at least 20% if this loophole is eliminated. Analysts believe that this policy change would lead to higher prices, making the products slightly less competitive in terms of pricing, and could potentially result in a loss of market share for these companies unless they pivot towards selling higher-priced items to balance out their offerings.
The Biden administration announced plans to bar overseas shipments of products subject to U.S.-China tariffs from being eligible for the de minimis exemption, following more than a year of scrutiny into Shein and Temu by lawmakers. While the companies have not confirmed whether they will raise prices in response to the proposed changes, they do argue that their low prices are not solely dependent on the de minimis exemption, attributing them instead to their efficient business models. Shein, for instance, supports de minimis reform and has participated in a pilot program with U.S. Customs and Border Protection to provide additional data about packages and shipments.
Over the past few years, Shein and Temu have gained significant traction in the U.S. market with their ultra-low prices and ability to quickly produce trending styles. Shein generates over $30 billion in revenue annually, while Temu’s parent company saw a 90% increase in revenue in fiscal 2023. These companies have been taking market share from competitors like H&M, Zara, Target, Walmart, and Amazon, partly due to their attractively low prices. If Shein’s prices were to increase, it would bring their assortment closer in line with competitors and could make it more challenging for them to compete in the market.
The ongoing investigations into Shein and Temu have focused on allegations of slave labor in their supply chains and their use of the de minimis exemption to avoid paying import duties. Lawmakers have been urging for de minimis reform in order to curb the companies’ growth and level the playing field for American businesses. While Shein has disputed claims that it did not pay import duties in 2022 and 2023, it has acknowledged issues with banned cotton regions in its supply chain and is working to address the concerns. As scrutiny on the companies intensifies, Shein’s plans for a U.S. IPO have been challenged, leading the company to look towards a listing in London instead.
As lawmakers target the de minimis exemption as a means to curb the influence of Chinese-linked retailers like Shein and Temu in the U.S., the proposed changes could impact the companies’ growth and pricing strategies. The potential increase in prices for their products may impact consumer perception and purchasing decisions, as shoppers may opt for retailers that offer similar pricing but with faster shipping times and a more competitive edge. Ultimately, the fate of Shein, Temu, and other companies reliant on the de minimis loophole will depend on how they adapt to the changing regulatory landscape and strive to maintain their competitive positions in the market.
