Charles Rex Arbogast/AP Photo
U.S. Customs and Border Protection technician Czar Zeman examines overseas parcels after they were scanned at the agency’s overseas mail inspection facility at Chicago’s O'Hare International Airport, February 23, 2024.
Numerous bills challenging China passed the House of Representatives last week, in a blitz orchestrated by the Republican leadership. But they left on the table a high-impact, bipartisan measure dealing with a clear danger from Chinese mercantilism: a bill to close the “de minimis” loophole that has allowed billions of packages into the country from China, avoiding tariffs or inspections.
The loophole, whereby packages valued at under $800 can bypass customs duty-free, was initially intended to save tourists from paperwork hassles when bringing home souvenirs. But it has now been blamed for facilitating the illegal drug trade and devastating the domestic textile industry. It makes consumer product safety compliance, trade enforcement of any kind, and even accurate estimation of the trade deficit impossible.
Shein and Temu, two Chinese discount e-commerce companies, directly ship hundreds of millions of cheap fast-fashion items per year, accounting for the majority of de minimis shipments. Their recent ascent has spurred the shuttering of 18 yarn-spinning and clothing factories in the U.S., to say nothing of the impact on local retailers. Credible concerns that Shein and Temu use forced labor to produce their goods could also mean that de minimis is obstructing enforcement of the Uyghur Forced Labor Prevention Act. Third-party Amazon sellers from China have also taken advantage of the loophole, and around the world countries are reacting to e-commerce exploitation of de minimis. South Africa has eliminated de minimis entirely, while the European Commission has proposed the same.
In the U.S., a bipartisan coalition urging immediate steps to close the loophole has formed, with broad support in Congress. In 2022, legislation that would have banned all de minimis shipments from nonmarket economies like China passed the House; that bill has been reintroduced. Bipartisan Senate legislation would ban several categories of goods, including those deemed “import-sensitive,” from claiming de minimis status, along with requirements for more data on shipments and an additional fee to fund customs operations. (There’s a House companion bill that’s somewhat similar.)
Last week, this coalition to close the loophole notched an initial victory. The Biden administration announced executive actions that would exclude any products from de minimis exemptions if they would otherwise be subject to tariffs under Sections 201 or 301 of the Trade Act of 1974, or Section 232 of the Trade Expansion Act of 1962.
The Section 301 tariffs are the big category here, covering 40 percent of all U.S. imports and 70 percent of textile imports from China, according to a White House fact sheet. Section 232 tariffs are on things like steel and aluminum; that’s not coming over in $800 bundles. But fast fashion from Shein and Temu is, and the Section 301 tariff exemption should cover that.
The proposed regulation includes specific actions that shippers would have to take to qualify for the exemption. Instead of drop-shipping directly to doorsteps, these packages would have to arrive in ports, with information on their contents. Separately, the Consumer Product Safety Commission will require importers to file certificates of compliance for all shipments, including those that claim the de minimis exemption. This would force importers to lie if they try to claim de minimis on a good that failed to undergo proper safety testing, and it would interact with the tariff exclusions as well.
The stock price of PDD Holdings, the parent company of Temu, fell on the announcement.
The recent ascent of Chinese e-commerce companies Shein and Temu has spurred the shuttering of 18 yarn-spinning and clothing factories in the U.S., to say nothing of the impact on local retailers.
But the administration only announced notices of proposed rulemaking, which must go through a lengthy public comment period. It’s not something that will have an immediate impact. The White House recognizes this, and is seeking congressional action before the end of the year to reform the loophole comprehensively.
Aspects of congressional action that the White House emphasized mirrored the bipartisan Senate legislation that would ban import-sensitive products as well as execute the proposed tariff exclusion. Under legislation, that exclusion would advance more quickly, with more legal support, and with funding to deal with any increased inspection burden. The White House also asked for reforms that would block fentanyl and precursor products used in manufacturing illegal drugs from using de minimis to hide illicit activity.
The White House announcement came just two days after 126 House Democrats, a majority of the caucus, sent a letter to the president calling for executive action. The letter noted that the Tariff Act of 1930 gives presidents broad discretion to determine what qualifies for de minimis treatment. Reps. Earl Blumenauer (D-OR) and Rosa DeLauro (D-CT), who led the letter, called the White House action “only the first step,” which “does not negate the need for Congress to act on a comprehensive solution.”
Other stakeholders applauded the White House action. “This is an important, common-sense reform,” said Kim Glas, president and CEO of the National Council of Textile Organizations, in a statement. Glas called for an expedited rulemaking to get the administration’s plan into effect. “We are calling on Congress and the administration to work together to immediately close this disastrous loophole once and for all.” She noted that existing enforcement blocking textile imports made with forced labor has stepped up over the past several months. About $22 billion in imports have been subjected to trade audits, according to the Department of Homeland Security, and inspections of small package shipments and joint trade special operations have increased.
Meanwhile, industry is pushing back. The National Foreign Trade Council, a trade group that includes international shipping companies, has defended the loophole and is now highlighting a study from Oxford Economics claiming that the House bill to ban nonmarket economies from using de minimis would cost $3.2 billion in 2025 for 39,000 customs officers, while generating $627 million in increased tariffs. A bill closer to the bipartisan Senate version, the study found, would cost $1.6 billion in 2025, and increase tariffs by $1 billion.
“Rolling back the de minimis provision would considerably increase costs for consumers and small businesses, while costing the government considerably more than the revenue it is expected to raise,” the study concluded.
But according to Lori Wallach of Rethink Trade, a division of the American Economic Liberties Project, the numbers are wildly misleading. “To get the crazy topline projection for greater expense to consumer and [almost] 40,000 more customs inspectors needed, they assume that the same number of small-value packages will arrive as if de minimis was in effect!” said Wallach. “Obviously, the business model behind many of these low-value packages being profitable relies on de minimis … So, if certain goods no longer qualify for de minimis, to the extent that Shein and Temu U.S. business survives, they will have to ship containerized and do fulfillment from warehouses here.”
A container ship full of T-shirts would be inspected once, in other words, not 83,000 separate times with separate fees for each package. If more inspection is needed because of suspected forced labor or tariff-dodging, the likelihood is strong that such goods wouldn’t come in at all if the violations couldn’t be hidden in de minimis packages. Yet the Oxford study just expects the same amount of goods with the same number of packages, a premise that is highly suspect, according to Wallach.
“Somewhere in the ivy towers of Oxford, an economics dean is weeping to see that university’s name associated with this private corporate consulting firm’s shonky work,” said Wallach.
It’s likely true that there would be some added expense if de minimis was blocked for many items, and imports had to go through the normal customs process. But the $2 fee per de minimis shipment in the bipartisan Senate bill, along with increases in tariff revenue, is designed to cover that relatively minimal expense, relative to the entire U.S. budget.
It’s also likely true that closing the de minimis loophole would make some consumer goods imported from Chinese e-commerce companies more expensive. I’m sure that the Emancipation Proclamation made cotton more expensive too, but that wasn’t a good enough reason to allow slavery to continue. Lawmakers and advocates are making the simple point that violating trade laws, forced-labor laws, or consumer safety laws isn’t an acceptable downside for cheap clothes.
