The U.S. tax loophole that makes Shein and Temu Rich change. What happens to the brand now?
Over the years, Shein and Temu have exploited tax loopholes in the U.S. to reduce their costs and super-send items to the country.
no longer.
U.S. President Donald Trump signed an executive order on April 2 to end the minimum exemption, a rule that allows U.S. taxes worth less than $800 to be included in U.S. taxes for free to obtain parcels from China and Hong Kong.
The De Minimis rules exist to prevent customs agents from spending too much time processing small packaging that does not generate too much money for the government to impose import taxes. But now, the Trump administration is turning around the rules for importing from China, saying the exemption has allowed illegal drugs to enter the country.
Companies like Shein and Temu, both founded in China, have used the rules to leverage their strengths to ship orders to the U.S. as a single package instead of storing shipment slats full of items in warehouses and distributing them to consumers, just like most retailers.
Samuel Roscoe, lecturer in supply chain and operations management at the University of British Columbia Business School, said the exemption is an important part of making Shein and Temu so low.
The United States has terminated the minimum tax exemption, allowing tax exemption from China, worth less than $800. As a result, Canadian companies using Chinese materials may increase costs for them and their U.S. customers.
“I hope they will take a big hit, but are still trying to compete in the United States,” Roscoe said.
But while rising prices, supply chain factors and border parcels may slow down will be obstacles, experts say these hit rates will not completely eliminate the company and will not quickly accelerate the fashion model.
Price increases have taken effect
Small packages worth less than $800 from China to the U.S. will be paid as of Friday 120% or $100 fixed fee. As of June 1, the fixed interest rate was set at $200.
Assuming the company fulfills its responsibilities to consumers through most or all of its responsibilities, the cost of items on Shein and Temu websites could double for Americans.
Shein and Temu have both Announce Price increases due to tariffs, which came into effect last week. one Bloomberg Analysis It was found that in some cases, the Shein products for the U.S. have increased by 377% in some cases, and women’s clothing has increased by an average of 8%.
Temu also added “import fees” to projects on its site, about 145% According to CNBC. Its analysis shows that, for example, the US Summer Suit’s $18.47 is now priced at $44.68 after import fees.
Roscoe said Canadians are unlikely to see any price increase today, given that there is no change in import rules or responsibilities between our country and China. (There are similar de Minimis waivers in Canada, with packages worth less than $20, $40 or $150 depending on where the package is shipped.)
At the time of writing, prices on Shein and Temu’s Canadian websites do not appear to change.
Despite the increase in the U.S. fees, Roscoe said that this did not bring Chinese e-commerce websites out of the game.
“Even if their prices have risen by half, they are still competing with North American retail stores,” Roscoe said.
He gave an example of a $10 bikini on a platform that could cost around $22 after tariffs were imposed. Bikini from H&M, H&M, Zara and Abercrombie are still much more expensive, with an average price of $50, $80 and $120, meaning Shein and Temu still have room to compete for the U.S. market.
Low-income Americans may suffer the most from rising prices, said Sheng Lu, assistant professor of fashion and clothing research at the University of Delaware. Basics like T-shirts and socks may see the biggest price increase, he said, because they may buy even if shoppers get more expensive.
Past, past competition with Shein and Temu also kept other fast fashion retailers at the price. Now, the Chinese e-commerce giant is raising its prices, and LU says it may allow other brands to raise their prices without having to worry about losing customers.
Supply chain issues are also a factor
According to Roscoe and Lu, the tariff hits and disappearance of the De Minimis vulnerability also brought many supply chain problems for Temu and Shein.
While neighbors such as Vietnam and Cambodia face far less tariffs than China’s, Lu said it’s not that easy to transfer production to other countries.
First, these transformations require a lot of time and money. Lu said that given how Ford Trump’s tariff policy has been so far, companies are unlikely to commit to changing their products at any time.
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He said that Chinese factories can also manufacture various products and mass-produce them. Companies like Shein design products, usually make hundreds of products to see how they sell, and then make more products. Lu said Chinese factories are fitting this approach, while factories elsewhere usually have at least 3,000 or 4,000 orders.
“They rely on factories in China to make such products based on their very complex and integrated local supply chains, [so] Deleting production from China is not easy. ” Lu said.
New rules could also hinder the speed of products entering the country, Lu said. De Minimis rules allow these small packages less than $800 to avoid processing when border agents arrive from China. But the deletion rules mean they will be subject to all checks.
Currently, according to De Minimis, about 1 million small packages are coming to the U.S. every day, he said, so the increased processing could impact how quickly people get packages consumers expect to receive within a few days.
To compensate for potential business losses, Roscoe said that Temo and Sheen are likely to enter other markets without high tariffs, such as Canada.
“We may see a lot of targeted ads to Canadians,” Roscoe said.
Lu said the expansion would help, but added that no retailer could realistically lose access to the U.S. market.
“We simply don’t have another market that can be as big as a money-making market,” Lu said.
The United States-China trade war is in full swing, with signs of backup on both sides. Andrew Chang explains how China absorbs the shock of U.S. tariffs and what this global economic disruption might mean for their position in the world order. Getty Images provided by images, Canadian Media and Reuters.
Sustainability winner? Think about it
Due to the rapid fashion cost increase caused by tariffs, some reports suggest that this could push consumers to the resale market, or the price of purchases in general is lowered – making it a victory for sustainability.
Lu said his Gen Z students, part of the core demographics of companies like Shein, said rising prices for cheap clothes would cause them to buy less or second-hand shopping in an attempt to avoid tariffs.
But, Anika Kozlowski, an assistant professor at the University of Wisconsin-Madison, said the increased import tax may actually exacerbate the current sustainability issues facing Shein and Temu. She said this could lead companies to use cheaper inputs that tend to reduce costs, keeping costs low.
She said that with the import of parts such as buttons or zippers, the cost of clothing repairs may increase, which can also become more expensive, which may also be hit by the second-hand clothing market. If the demand and economic pressures for second-hand stores are greater, Kozlowski said sellers may also raise prices, making shoppers not want this sustainable option.
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Overall, Kozlowski said tariffs don’t undermine fast fashion because they don’t solve the root cause, which is our desire for super cheap items.
“We will still have a consumer culture,” Kozlovsky said. “It won’t break this addiction.”
She said any real solution had to start from there like Roscoe.
Roscoe said Shein and Temu came and enhanced the quick fashion model founded by companies like Zara in the late 1990s. While it took several months to go from one concept to one real product, especially new products that can turn around Only 25 daysmaking the clothing industry lose faster than in the past.
Roscoe said slowing this rate would require efforts, such as government legislation to resist waste and exploitation processes, and consumers resist brands participating in these practices.
