A tariff loophole is closing. Why that matters for Shein, Temu and other Chinese online retailers
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President Trump’s tariffs could reshape one of retail’s most booming sectors: fast fashion.
Hefty taxes on imports from the U.S.’ biggest trading partners have been averted at least temporarily by Mexico and Canada, but not China, which had an additional 10% tariff imposed on its goods this week. Trump’s aggressive move, which triggered a measured response from China, nonetheless drew immediate concerns over a potential trade war and higher costs for consumers.
Included in Trump’s China gambit was a decision to close a decades-old trade loophole that had allowed lower-cost items to skirt existing tariffs. That could change the landscape of online shopping, particularly for the Chinese e-commerce companies behind wildly successful sites, such as Shein and Temu, that have enticed U.S. shoppers with bargain-basement prices.
Sometimes called ultra-fast fashion, the brands respond instantaneously to trends, luring customers with almost impossibly low prices — a two-piece women’s outfit on Temu retails for $3.19 and a pack of seven bras on Shein sells for $12.69, for example. They often ship directly from manufacturer to consumer, cutting out middlemen and giving them an advantage over other retail giants such as Walmart and Target.
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But that advantage could now shrink.
“It takes a little bit of their competitive edge away,” said Neil Saunders, a retail analyst at GlobalData Retail, who has studied fast fashion. Not only will the companies now have to pay taxes on those items, he noted, but their parcels will be subject to more scrutiny from customs agents, which could cause shipping delays.
“They either have to take a hit on their margins,” Saunders said, “or they have to put prices up for the consumer, and given that their whole business model is low prices, it might reduce sales.”
The impact was immediate. The U.S. Postal Service announced Tuesday that it would stop accepting packages from China and Hong Kong. But by Wednesday morning the agency had resumed operations, saying in a statement that USPS officials and customs agents were working to implement “an efficient collection mechanism for the new China tariffs” while also trying to minimize delivery disruptions.
Shein and Temu, whose representatives did not respond to requests for comment, had anticipated Trump’s decision and worked in recent months to diversify their supply chains, including expanding networks in the U.S.
Dating back to the 1930s, the loophole called the de minimis — Latin for something so small it’s insignificant — exemption allowed shipments valued below a certain threshold to avoid customs duties. That threshold, which started at $1, was raised through the years to $800.
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U.S. Customs and Border Protection, which regulates the importation of goods, estimates that a billion packages were imported using the method in 2023, according to a recent report from the Congressional Research Service. The value of those packages totaled more than $54 billion.
The loophole became the “primary path” for online purchases from China into the U.S. market, the report found, and the financial implications were vast — exports of low-value packages from China ballooned to $66 billion in 2023, a drastic increase from $5.3 billion in 2018.
“Many low-priced products from China that depend on de minimis may no longer be available in the market,” said Sheng Lu, professor and graduate director of fashion and apparel studies at the University of Delaware, who said the change will likely translate to price hikes for U.S. consumers.
Closing the loophole, Lu added, could also devastate the hundreds of thousands of small e-commerce businesses in the U.S. that often rely almost exclusively on sourcing from China, whereas larger companies often have more diversified sourcing bases. Lu stressed, however, that many specifics of the change remain unclear, including how customs agents will enforce such an order given the short notice and the large volume of products.
The president’s decision has been lauded in recent days by drug abuse prevention groups that sent him a letter last month, saying the loophole was being used to flood the U.S. market with fentanyl and the precursor chemicals needed to make the drug.
“The only way to sever this major artery for the flow of fentanyl and other illicit and harmful products into our country,” the letter reads, “is to end the entire notion that by breaking up shipments into smaller valued packages, an importer can dodge inspection, tariffs and taxes.”
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The trend forged by European retail giants, such as Zara and H&M, has been increasingly dominated in recent years by Shein, now headquartered in Singapore, whose target revenue for the year exceeds $50 billion. And more recently, Temu, whose parent company moved its headquarters from China to Ireland, quickly went from a relative unknown to the most downloaded app in the U.S.
Saunders, the retail expert who studies fast fashion, said that while closing the loophole will affect the companies, he doesn’t expect it to render them redundant. Since the items they sell are cheap, he noted, it will amount to adding between 10 or 20 cents on the dollar.
“They’re not going to disappear,” he said. “It’s not going to make them uber expensive, it just makes them a bit more expensive.”
Bloomberg contributed to this report.
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