President Donald Trump’s latest move could send shock waves through the fast-fashion industry, and threatens to upend the business models of companies like Shein and Temu while increasing the price of foreign-made goods for U.S. consumers.
On Wednesday, the president signed an executive order ending the de minimis tariff exemption for shipments valued at under $800, which the White House said will close the “catastrophic loophole” used to evade customs duties and “funnel deadly synthetic opioids” into the United States.
Why It Matters
The move deals a significant blow to the e-commerce sector, in particular companies such as Shein and Temu, which one expert previously told Newsweek had “built their entire business model” around utilizing this loophole. The suspension of de minimis, which the White House said will minimize “national and economic security risks,” could see the prices of foreign products rise on these platforms as well as other sites such as eBay, Etsy, and Amazon.
Newsweek reached out to Shein and Temu via email and their websites for comment.
Beyond e-commerce companies such as Shein and Temu, U.S. Customs and Border Protection (CBP) estimates that de minimis shipments account for 92 percent of all cargo entering the U.S., meaning the decision will impact a swathe of low-cost consumer products from phone accessories and beauty products to small electronics and household items.
Photo Illustration by Ben Montgomery/Getty Images
What To Know
In Wednesday’s executive order, Trump said that the exemption had allowed shippers worldwide to “exploit the de minimis privilege in an effort to evade duties, inspection, and U.S. law.” The order is set to take effect on August 29, after which these shipments will be subject to “all applicable duties.”
This follows Trump’s decision in May to suspend the provision for cargo from China and Hong Kong, which accounted for the majority of de minimis shipments to the U.S. The White House said that the exemptions had allowed “fentanyl and related precursor chemicals” to be more easily exported to the U.S.
This decision, as well as the escalating tariffs placed on China over April, saw the number of Americans using Shein and Temu plunge. Daily active users of Temu and Shein dropped 52 percent and 25 percent, respectively, between March and May, according to data from Sensor Tower, cited by CNBC.
In late April, the two companies also announced that they would be raising prices as a result of “recent changes in global trade rules and tariffs.” The truce signed between the U.S. and China in May, which has seen tariffs temporarily lowered as the pair attempt to negotiate a fully fledged trade agreement, prompted both companies to drop this change.
However, the decision to suspend de minimis exemptions universally could once again pose a challenge to the e-commerce giants, as well as the entrepreneurs who rely on them for their own “drop-shipping” businesses, and customers who have come to enjoy their discount products.
“The end of de-minis shipping will raise consumer prices for certain as effectively, many goods that may presently enter tariff free will now be subject to higher average tariff rate,” Thiemo Fetzer, a professor of economics at the University of Warwick, told Newsweek.
“U.S. consumers may have fewer choices and goods will become persistently more expensive,” he said.
“Conventional wisdom will dictate a price increase,” said Z. John Zhang, a professor of Marketing at the University of Pennsylvania’s Wharton School. “But such an increase can easily be the beginning of the end for fast fashion companies from China.”
Zhang told Newsweek that closing de minimis will be “devastating for companies whose sole business model is based on the loophole,” but added that Shein and Temu had received enough “warning shots” to begin making adjustments to their business models ahead of the decision.
Fetzer said that one “mitigation strategy” would be to develop their network of U.S. warehouses in the U.S., and use these to “ship goods intra-U.S.,” but acknowledged that this may prove challenging and prohibitively expensive.
“This would require a major pivot in operations that nevertheless should be feasible for Temu to achieve,” he said. “Yet it could then be that certain goods simply become too expensive due to the higher tariffs rates; increased costs from warehousing and storage; and higher compliance cost associated with customs procedures.”
What People Are Saying
The White House, on Wednesday: “Today, President Donald J. Trump signed an Executive Order suspending duty-free de minimis treatment for low-value shipments, closing the catastrophic loophole used to, among other things, evade tariffs and funnel deadly synthetic opioids as well as other unsafe or below-market products that harm American workers and businesses into the United States.”
Z. John Zhang, a professor of marketing and pricing strategy expert, told Newsweek: “The companies have no choice now but to adjust in a fundamental way and find a new way to do fast fashion. Time will tell if [Shein and Temu] will be as competitive as many other capable retailers in a new environment.”
Sheng Lu, a professor of fashion and apparel studies at the University of Delaware, told Newsweek: “In the short to medium term, [Shein and Temu] may still be able to maintain their competitiveness in the market…many smaller e-commerce companies may not even survive their business with the policy shift, which in turn helps reduce competition.”
“At the same time, conventional brands and retailers are also grappling with rising tariffs and ongoing policy uncertainty,” he added, “which could create a temporary grace period for Shein and Temu to adapt and experiment with new business models.”
Rob Handfield, a professor of Supply Chain Management at North Carolina State University, told Newsweek: “Shein and Temu have relied on de minimis shipments as a core feature of their business model. This will likely not only impact their revenues and profitability, but will also increase the cost of their products, making them less appealing to customers in the U.S.”
“They will be able to partially absorb the tariffs on these goods, depending on the outcome of the negotiations between Trump and China,” he said. “They may also push on their suppliers in places like India, Bangladesh, and Vietnam to even further reduce their costs, even though these parties are stretched thin. As such, they will still remain competitive, but much less so than in the past.”
Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, previously told Newsweek that closing the de minimis exemption could prove challenging for customs authorities.
“There are millions of these packages coming in every day,” he said. “And the customs services doesn’t have the manpower to assess them and charge a tariff. So, you know, after two days, they have to give it up.”
“There’s no way that customs can investigate the ownership of millions of companies every day,” he added. “So it’s whack-a-mole.”
What Happens Next
Trump’s suspension on “reciprocal tariffs” will end on Friday, meaning most countries that were unable to secure a trade deal with the U.S. will see their rates revert back to the levels announced on April 2.
The 90-day tariff pause on China is due to end on August 12, with no indications of a further extension.
