The De Minimis Exemption: A New Era for Retail and Its Global Implications

The de minimis exemption, a trade rule nearly a century old, has significantly reshaped the retail landscape, granting foreign e-commerce giants like Shein and Temu a significant advantage over American retailers. (Jordyn Holman, The New York Times). The de minimis exemption is fueling rapid growth for these companies by allowing low-cost packages to enter the U.S. duty-free. (Yuka Hayashi et. al, The Wall Street Journal). However, the rule also raises pressing concerns regarding unfair competition, labor practices, sustainability, and the impact on U.S. tax revenues and product safety. This article explores the de minimis exemption, its role in the exponential growth of retailers such as Shein and Temu, the various concerns it presents for U.S. consumers and the U.S. government, and the potential impact of this exemption on the future of the retail industry.

The de minimis exemption has significantly propelled the success of foreign retailers like Shein and Temu. Under this exemption, companies shipping packages worth less than $800 into the United States avoid paying duties and fees that Customs and Border Protection (“CBP”) ordinarily enforces, as well as bypass various inspections. (Jordyn Holman, The New York Times). Shein and Temu are the most significant users of this loophole, and the loophole has been instrumental in the companies’ success as it allows them to sell goods at cheaper prices with little oversight and restrictions. (Ana Swanson & Claire Fu, The New York Times; Katherine Masters, Reuters). A report published by a House of Representatives committee estimated that Shein and Temu account for over 30% of all de minimis shipments into the U.S. Id. The companies’ strategy of shipping orders falling below the $800 threshold directly from China to individual American customers has successfully sidestepped tariffs and inspections, contributing to their rapid market expansion. Goldman Sachs estimated that Temu “now generates more than $1 billion of monthly transaction value” and is only expected to grow. (Sheila Chiang, CNBC). Meanwhile, Shein was estimated to reach $30 billion in transaction value in 2022. Id.

For U.S. consumers, the appeal of low-cost products is undeniable. However, there are hidden costs. The de minimis exemption provides an unchecked channel for potentially unethical goods to enter the United States. (Jordyn Holman, The New York Times). The influx of these goods raises significant concerns for U.S. shoppers regarding labor rights, health hazards, and sustainability issues. As for labor rights concerns, Shein and Temu have faced allegations that forced labor has been used to produce their products. (Yuka Hayashi et. al, The Wall Street Journal). The U.S.-China Economic and Security Review Commission (the “Commission”) reported in its issue brief that Shein and Temu have violated the Uyghur Forced Labor Prevention Act (the “UFLPA”). (Nicholas Kaufman, USCC). The UFLPA bans the use of Xinjiang cotton in imported clothing due to the region’s serious human rights violations. Id. A Bloomberg investigation published in November 2022 found traces of cotton from Xinjiang in Shein’s products, and items on Temu’s website have included “Xinjiang Cotton” in the description. (Hope O’Dell, bluemarble). The Commission also reported that Shein and Temu have a pattern of violating various labor practices, such as underpaying and overworking employees. (Nicholas Kaufman, USCC).

The health and environmental implications of products from these e-commerce platforms are equally alarming. Investigations have uncovered high levels of hazardous chemicals in Shein's clothing, including lead and phthalates, posing significant risks, especially to children. Id. Environmental group Greenpeace also found that various chemicals used in Shein products exceeded EU regulatory limits. Id. As for the environmental implications, the UN Environmental Program estimated that the fashion industry is responsible for 10% of global carbon emissions, a figure set to increase by over 50% by 2030. Id. The reliance on new plastics, the low reuse rate of products, and the high volume of clothing produced and discarded exacerbate this trend. Id. Fast fashion retailers like Shein and Temu produce a high volume of products at very low costs. This fast fashion model results in a massive amount of clothing waste, most of which ends up in landfills or incinerated. (Nana Ama Sarfo, Forbes). This in turn contributes significantly to global greenhouse gas emissions and water pollution. Id.

The de minimis exemption also presents significant product safety and tax challenges for the U.S. government. The volume of low-priced packages bypassing inspections increases the risk of unsafe products entering the United States. Billions of imports that fall under the de minimis exemption are not screened by CBP. (Alexa Kutz, GW Law). This loophole greatly curtails efforts to eliminate forced labor and keep illegal substances outside the U.S. borders. Id. The nature of de minimis shipping also requires far less disclosure about the products and the companies involved in transactions. (Jordyn Holman, The New York Times). As a result, it is increasingly difficult for U.S. customs officials to detect packages containing hazardous chemicals, counterfeits, and goods made with forced labor. Id. Additionally, the exemption results in considerable tax revenue losses and undermines the competitiveness of American-based businesses that cannot leverage this exemption to the same extent. E-commerce companies like Shein and Temu are in a better position to take advantage of this exemption since the companies ship products individually and almost all fall below the de minimis threshold. (Nicholas Kaufman, USCC). Meanwhile, American retailers pay millions of dollars in import duties every year. (Chelsey Cox, CNBC). For instance, in 2022, Gap paid $700 million, H&M $205 million, and David’s Bridal over $17 million in duties. Id. The surge in de minimis shipments has sparked debates about the fairness of this provision.

The ongoing debate centers on whether the U.S. will close this loophole. Lawmakers and domestic retailers have raised concerns about the disproportionate benefits to foreign goods and companies under the exemption, prompting increased scrutiny and calls for reform. (Katherine Masters, Reuters). However, efforts to amend or eliminate this exemption face opposition from American businesses like UPS and FedEx, who argue that restricting the de minimis threshold could overwhelm customs officials and disrupt supply chains. (Yuka Hayashi et. al, The Wall Street Journal). Looking ahead, foreign retailers may need to adapt their strategies if the U.S. decides to reform the de minimis exemption. The U.S. is increasingly scrutinizing the de minimis exemption, and companies may soon face stricter regulations. For example, in 2022, the House of Representatives passed the COMPETES Act which included a provision to remove de minimis privileges for “goods sourced from nonmarket economies with known IP violations.” (Nicholas Kaufman, USCC). At the state level, New York’s Fashion Sustainability and Social Accountability Act was reintroduced in February 2023 with stronger provisions for “legally binding environmental and labor standards in the fast fashion industry.” Id. Ultimately, the e-commerce industry is rapidly evolving, and retailers who can successfully navigate these changes will emerge stronger, offering consumers a mix of affordability, quality, and ethical sourcing.