Trump’s De Minimis Cancellation: Impact on Temu and Shein’s Future In a move that could shake up the global e-commerce landscape, former President Donald Trump’s decision to cancel the de minimis rule could significantly affect businesses like Temu and Shein. For years, this rule allowed products worth up to $800 to be imported into the United States without incurring customs duties, benefiting numerous Chinese e-commerce companies. However, with this rule now scrapped, these companies may face new obstacles.
The cancellation of the Section 321 de minimis exemption is not the death knell for Shein and Temu. In fact, it is unlikely to substantially alter their competitive standing against Amazon or drastically hurt their business operations.
Many on LinkedIn, particularly those in Amazon agencies, may be celebrating prematurely, thinking this marks the end for Shein and Temu. While I understand their perspective—having been a seller myself and not a big fan of Temu—I believe these platforms are here to stay, and the impact of this change will be less significant than anticipated. I have numerous reasons to support this, such as Shein’s U.S. market reliance now being under 30% and Temu’s well-established local delivery infrastructure. However, I will focus on the core dynamics of the U.S. market itself.
I recently spoke with a Shein executive who confidently stated, “We’re prepared. We’ll simply ramp up our travel this year and speed up our overseas supply chain development in Brazil, Turkey, and Southeast Asia.” The executive assured me that “the chaos will be resolved in a few weeks,” showing calm assurance in their long-term strategy.
While cargo areas at major U.S. airports like LAX, JFK, and ORD are currently unusually empty, this is not entirely due to the de minimis rule change. The de minimis elimination will take effect on January 11, 2025, and had been signaled as early as July 2024. If you look at the data, PDD’s stock price has already reflected this change. Additionally, recent disruptions, like the suspension of Type 86 and the USPS debacle—where packages from China/Hong Kong were first refused and then accepted within hours—show the chaos that can arise from abrupt changes in customs rules.
For those familiar with cross-border supply chains, the $800 Section 321 exemption wasn’t as critical as many might think. Both Shein and Temu have revolutionized their business models, implementing fully managed systems and digitalized supply chains that allow for flexible production with minimum order quantities (MOQ) of just 50 pieces. While I’ve always supported the U.S. in closing the $800 de minimis loophole to ensure duties are collected and make the business model more legitimate, Trump’s proposal last Friday to add a 10% tariff on Chinese goods and suspend Type 86 clearance without any notice period came as a surprise.
To clarify, the de minimis threshold dropping to zero is a confirmed change, but it’s separate from the complete removal of the Type 86 clearance model. A temporary workaround has been introduced, shifting to Type 11 informal entry, which adds roughly $2.60 per package plus duties (around 8% of FOB or retail price). This could total about $3 extra per package, with additional fees potentially making the total add-ons range between $5-$10 per package.
While I believe Type 86 will likely be reinstated (as U.S. Customs lacks the resources to inspect every package and determine the Made in China content), even with the new Type 11, I don’t see this making Temu or Shein uncompetitive. The added costs may not deter U.S. consumers, as Shein and Temu offer products at a low enough price point to absorb such minor increases.
The current issues with flight suspensions stem primarily from the sudden Type 86 cancellation last Friday. This abrupt change left U.S. customs brokers unprepared, as duties are typically deducted directly from their ACH accounts on a monthly billing cycle. No broker is willing to cover these duties upfront, especially during the Chinese New Year holiday. This lack of preparedness resulted in the USPS’s temporary refusal and later acceptance of packages.
I anticipate that the situation will resolve within 1-2 weeks, allowing packages to go through smoothly. Even if Type 86 isn’t restored in the near future, Type 11 remains a viable option. For those celebrating prematurely, it’s best to hold off on the champagne. Companies considering U.S. warehouse investments should proceed cautiously, as general trade tariffs remain high. However, following Shein’s lead in exploring non-Chinese supply chains, particularly in Southeast Asia, is a strategic move for 2025.
What is the De Minimis Rule?
Before diving into the implications for Temu and Shein, let’s first understand the de minimis rule. Under the previous U.S. law, goods valued at $800 or less could enter the U.S. duty-free. This rule was particularly beneficial for online platforms, especially those operating in cross-border e-commerce like Temu and Shein, as it enabled them to deliver affordable goods to U.S. consumers without the added cost of customs duties.
Key benefits of the rule included:
- Lower Prices for Consumers: Goods could be sold at lower prices since duties weren’t added.
- Faster Delivery: By bypassing customs fees, shipping times were often faster, making e-commerce more attractive.
- Increased Market Reach: Companies were able to expand into the U.S. market without the financial burden of import duties.
Why is Trump’s De Minimis Cancellation Bad News for Temu?
Temu, a rapidly growing e-commerce platform, primarily operates by offering low-cost products directly from Chinese manufacturers. For Temu, the de minimis rule was crucial in keeping prices competitive. Here’s why this rule’s cancellation poses a challenge:
- Increased Costs for Consumers: Without the duty-free benefit, products sold on Temu will likely become more expensive, affecting its pricing strategy.
- Supply Chain Disruption: Temu’s current model of offering low-cost goods without customs delays could face disruption, leading to longer delivery times and potential customer dissatisfaction.
- Competitive Disadvantage: Competing platforms that are not as reliant on cross-border e-commerce could have a competitive edge if they are not affected by the same import restrictions.
Why is This Worse News for Shein?
While Temu is facing challenges, Shein, another Chinese e-commerce giant, could experience even greater difficulties due to Trump’s decision. Shein, which has built its empire around low-cost, fast-fashion products, heavily relies on international shipping to the U.S. market. The de minimis rule has been a major factor in its ability to deliver affordable products.
Here’s why Shein is at a higher risk:
- Higher Duty Costs: Shein’s business model is centered around low-cost, high-volume sales. With added customs duties, prices may rise, forcing Shein to rethink its pricing structure.
- Disruption of Speed and Efficiency: Shein’s success has been partly due to its ability to deliver fast, often duty-free, shipments. The new rules will slow down its operations and may reduce its customer satisfaction.
- Potential Regulatory Hurdles: As Shein continues to expand, new customs regulations could complicate its international expansion plans, especially if it faces stricter scrutiny in other markets as well.
Potential Impact on the Broader E-Commerce Industry
The cancellation of the de minimis rule not only affects Temu and Shein but also signals broader changes for the global e-commerce industry. Here are a few key effects:
- Increased Operating Costs: Many e-commerce companies will need to adjust their business models to accommodate the new customs fees, which could raise prices for consumers.
- Supply Chain Challenges: The change may prompt companies to reconsider their supply chain strategies, potentially looking for local manufacturing or adjusting shipping routes to minimize costs.
- Regulatory Scrutiny: With new import policies, U.S. customs could ramp up its focus on cross-border shipments, resulting in longer wait times, higher costs, and increased scrutiny for e-commerce platforms.
Key Takeaways
- Trump’s de minimis rule cancellation is set to increase costs for companies like Temu and Shein that rely on duty-free imports to the U.S.
- Shein, in particular, may face higher duties, slower delivery times, and customer dissatisfaction, which could disrupt its growth trajectory.
- The broader e-commerce market may experience higher consumer prices and logistical challenges due to new customs rules.
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FAQs
1. What is the de minimis rule?
The de minimis rule allowed goods worth up to $800 to enter the U.S. without customs duties. It significantly benefited cross-border e-commerce.
2. Why does Trump’s cancellation of the rule matter for Temu?
Temu’s business model relies on offering low-cost products to U.S. consumers. The cancellation means products could become more expensive and take longer to ship.
3. How is Shein more affected by the rule change?
Shein’s model depends heavily on low-cost international shipping. The cancellation of the de minimis rule may increase shipping costs, reduce speed, and hurt customer satisfaction.
4. What broader impact does the de minimis rule cancellation have?
The change could increase operating costs for e-commerce platforms, slow delivery times, and lead to higher consumer prices across the industry.
5. Can Shein adjust its strategy?
Shein may have to revise its pricing strategy or explore alternative shipping models to offset higher import costs and maintain its competitive edge.
6. What are the implications for U.S. consumers?
Consumers may face higher prices and longer delivery times as e-commerce platforms adjust to the new customs regulations.
