In the ever-evolving landscape of retail, American businesses have been grappling with an existential crisis for years, largely due to the disruptive force of e-commerce. However, a new challenge has emerged, posing a significant threat to domestic retailers. This threat originates from an age-old trade rule known as “de minimis,” which allows companies to ship packages valued at less than $800 into the United States without paying the customary duties and fees enforced by Customs and Border Protection. This policy disproportionately benefits e-commerce giants, many of which are based in China, and has raised concerns among retailers and policymakers alike.
Each day, close to three million de minimis shipments enter the United States, with approximately half of them being textile and apparel products. Critics argue that this policy puts American companies at a disadvantage. Chinese-founded retailers like Shein and Temu can directly ship merchandise from overseas warehouses to customers’ doorsteps, often avoiding the $800 threshold. In contrast, products made abroad and then shipped to U.S. retailers in bulk, where they are stored in warehouses before reaching consumers, are less likely to meet the $800 threshold. This discrepancy has led to allegations that the de minimis rule creates a channel for goods potentially produced by forced labour to enter the United States.
In June, the House Select Committee on the Chinese Communist Party published a report revealing that Temu and Shein were likely responsible for over 30% of all packages imported under the de minimis provision. U.S. retailers are demanding a change to the de minimis rule, fearing that if it remains unchanged, companies may move their warehouses and jobs outside the country. Shein and Temu have expressed their willingness to work with lawmakers to reform this policy, emphasizing that their growth does not hinge on the de minimis provision.
For some American retailers, the de minimis rule has played a significant role in their financial struggles. Jim Marcum, CEO of David’s Bridal, stated that this policy contributed to the company’s second bankruptcy filing in five years, as they paid approximately $20 million in fees to U.S. Customs in 2022, while their Chinese competitors shipping directly to consumers paid nothing.
To address this issue, the Ship Safe Coalition, consisting of 20 U.S. retailers, has proposed expanding the de minimis rule’s application to U.S. distribution centres located in foreign trade zones. These zones allow companies to delay duty fee payments until the products are shipped to customers, which helps manage cash flows. However, unlike products shipped from overseas warehouses, products from foreign trade zones are not exempt from fees when valued under $800.
The coalition’s aim is to achieve parity, ensuring a level playing field for American retailers and protecting U.S. jobs. However, not all U.S. retailers support this approach. Kim Glas, the president of the National Council of Textile Organizations, prefers limiting the use of de minimis rather than expanding its application. She supports a bill that would exclude “nonmarket economies” like China and Russia from utilizing the exception.
As the debate continues, the American Apparel & Footwear Association is actively seeking input from its members to formulate a policy recommendation to address this issue. Ultimately, finding a fair solution to the de minimis dilemma is crucial for preserving the competitiveness of U.S. retailers in the face of ever-evolving global trade dynamics.