This loophole let Temu and Shein become giants – Trump has just closed it

Donald Trump’s tariffs could stop Chinese fashion firms Shein and Temu from flooding the market with clothes and goods at low prices.

Fast fashion giants rely on the de minimis rule, a century-old trade law that lets them to offer their products very cheaply.

The rule allows imports valued at less than $800 (£650) to enter the United States duty-free, as long as they are packaged and addressed to individual buyers.

It has boosted e-commerce shipments from the Chinese companies, and others which rely on it to sell cheap clothes, houseware, pet supplies, cosmetics and more.

But the US president’s new tariff orders against Canada, Mexico and China all contain clauses that scrap the de minimis exemption for small packages.

This could prove devastating for the firms, which rely on very low profit margins by operating on a “factory-to-consumer” business model, experts say.

Michael Sobolik, senior fellow at the Hudson Institute, told The Telegraph: “If they behave like most companies do, I wouldn’t be surprised if they try to pass it [costs] on.

“But they find themselves facing a different challenge, which is the value proposition for the US consumer and how insanely cheap these products are.

“American consumers are going to have to ask themselves, are they going to be willing to pay higher prices for these goods?”

In 2023, US politicians offered a blistering critique of Shein and Temu and concluded there was an “extremely high risk that Temu’s supply chains are contaminated with forced labour”.

The findings were part of a congressional investigation into products offered to American consumers that could be made with forced labour in China.

According to documents Temu provided to the committee, it has more than 80,000 suppliers for its vast e-commerce platform.

The report found the Chinese firm had failed “to maintain even the facade of a meaningful compliance program” for its supply chains and was probably importing products made with forced labour into the US on a “regular basis”.

Notably, the politicians criticised the company’s heavy use of the de minimis law.

Mr Sobolik added: “The American people should not be subsidising slave labour produced goods at all, so I think Mr Trump’s policy is fantastic.”

Temu and Shein make heavy use of the loophole, together accounting for almost 600,000 such packages shipped to the US daily, the report said.

Mike Gallagher, the Wisconsin Republican representative who leads the committee, said at the time: “Temu and Shein are building empires around the de minimis loophole in our import rules – dodging import taxes and evading scrutiny on the millions of goods they sell to Americans.”

He added: “We need to take a hard look at this loophole that is being abused to tilt the playing field against American companies.”

One million packages a year

The US Customs and Border Protection agency estimates that it processes more than one billion de minimis shipments per year.

In January, Joe Biden’s administration issued last-minute proposed rules to curb the de minimis exemption, denying it to goods under other punitive tariff orders, and requiring global shippers to identify the package contents by their 10-digit tariff codes.

It is unclear if Customs and Border Protection, now under Mr Trump’s direction, will act to finalise that rule.

Klaus Larres, a Global Europe and Kissinger China Institute Fellow at the Woodrow Wilson Center, said costs would be passed on to American consumers so Temu and Shein can blame Mr Trump for the price increases.

“I think prices for the American consumer will go up first. I don’t think it will be felt tomorrow but prices will be raised,” he said.

“And I think also the Chinese will want to accept that, to make the American consumer at the very basic level feel what Trump is doing.

“That is definitely the tactic, but I don’t think that they want to embark on a real tit-for-tat until something more severe happens.”