By Ana Swanson and Jordyn Holman
Leading U.S. retailers like Amazon and Walmart are discreetly investigating a shift towards a business model that emphasizes shipping goods directly from Chinese manufacturers to consumers, reducing their reliance on American workers in retail and logistics operations.
This initiative has been fueled by the soaring popularity of Chinese e-commerce platforms such as Shein and Temu, which have captivated consumers with their affordable prices. These platforms deliver cheaply priced products straight to consumers’ homes, enabling them to evade U.S. tariffs on Chinese imports, as well as the substantial expenses tied to physical stores, warehousing, and distribution systems.
Intensifying rivalry from Shein, Temu, and other Chinese firms is compelling numerous prominent U.S. retailers to contemplate adopting a similar approach to qualify for a little-known, century-old American trade law, several insiders involved have revealed. The de minimis law permits importers to evade U.S. taxes and tariffs on shipments as long as they don’t exceed a value of $800.
However, this trend towards altering business strategies may have encountered a setback on Friday, when the Biden administration suddenly moved to restrict de minimis eligibility for numerous Chinese imports, particularly most apparel. In a Friday morning announcement, the administration indicated it would tighten controls on the volume of packages arriving in the U.S. duty-free via de minimis shipping, especially from China.
The Biden administration’s modifications won’t be implemented immediately. The proposal will undergo industry review and feedback before it is finalized in the upcoming months, and some imports from China may still qualify for de minimis exceptions.
Nonetheless, Friday’s move could prevent a significant shift that has been anticipated in global retail. Amazon has been developing a new discount service to send products directly to consumers, which would allow these items to sidestep tariffs, according to individuals familiar with the plans. Even companies that preferred to maintain their current models — like Walmart — are being compelled to reconsider adopting more de minimis strategies to stay competitive.
Walmart opted not to provide any comments. An Amazon representative stated in an email that the company is “constantly exploring innovative ways to collaborate with our selling partners to provide our customers with a broader selection, lower prices, and enhanced convenience.”
Steve Story at Apex Logistics International assists businesses importing products from China in capitalizing on de minimis. Serving as the executive vice president for customs and international trade with the firm, Story noted that de minimis had instigated a “paradigm shift” within retail. U.S. companies find themselves compelled to explore this provision “whether they wish to or not,” he remarked.
“It’s adapt or be outpaced,” Story commented. “Retailers like Walgreens: If they don’t transition online and embrace this model, they risk falling behind Shein, Temu, and Alibaba.”
Story mentioned he assisted Chinese sellers in bringing products into the U.S. without tariffs by routing shipments through Amazon fulfillment centers. A customs decision in 2020 permitted Chinese firms to function as “nonresident importers,” allowing them to ship goods tariff-free to themselves at Amazon warehouses across the U.S.
Historically, retailers organized for shipping containers filled with products to reach U.S. ports from China. Those items were subsequently transported to a company’s warehouses and shops before being sold to customers.
Nevertheless, retailers increasingly sidestep this process by individually packing and shipping products directly from China to consumers under the de minimis regulation. In this method, the shopper is recognized as the official importer, rather than the retailer or e-commerce service, keeping the shipment values predominantly beneath the $800 limit.
Beyond avoiding tariffs, sellers face less stringent requirements for information submission to U.S. Customs and Border Protection compared to larger shipments.
This model gained momentum following the tariff implementations by the Trump administration in 2018 and 2019 on numerous Chinese products imported through traditional channels. The increase in online purchases during the pandemic also facilitated the rise of such direct shipments, which now account for roughly one-fifth of e-commerce orders.
The yearly volume of packages entering the U.S. under de minimis has skyrocketed to over 1 billion in 2023, up from 140 million ten years prior. China is the predominant origin of these packages, sending more than all other nations combined, according to customs data.
U.S. companies and trade associations have raised concerns that these regulations create a dual-tier approach, where brands with physical stores and warehouses in the U.S. bear higher tariffs than those shipping directly to consumers.
For instance, an importer transporting 10,000 cellphone screen protectors to the U.S. could save over $7,000 in taxes and duties by individually packing and sending the protectors directly to consumers, instead of routing them through a warehouse, as illustrated in a presentation by Apex Logistics for its clients.
Additional U.S. businesses expressed that the de minimis exemption imposes pressure on retailers employing Americans within their distribution centers. Advocacy groups seeking to eliminate de minimis have argued that this provision has recently contributed to the closure of several remaining textile factories across the U.S.
Portland, Oregon’s Columbia Sportswear indicated that retailers are now compelled to integrate U.S. trade policy into their financial considerations regarding supply chains, akin to assessing real estate and labor expenses. Columbia operates two distribution facilities in the U.S. and one in Canada.
Peter Bragdon, general counsel at Columbia Sportswear, remarked that de minimis serves as a substantial “tax incentive that the U.S. is offering to relocate jobs elsewhere.”
“It alters the calculations,” Bragdon added.
In a U.S. government hearing in 2022, Borderworx Logistics, a firm providing warehousing and customs services, indicated that certain Chinese companies employ illegal strategies to take advantage of de minimis, such as altering invoices to keep the value beneath $800 even when product costs exceed that amount.
In other instances, businesses may fabricate shipping documents and customer orders to send numerous individual packages into the U.S. duty-free, later reassembling them into larger shipments for major clients, Borderworx observed.
Some retailers have also relocated their warehouses outside the United States, moving them to Canada or Mexico. As a result, when an American consumer orders an item, it can swiftly and legally enter the U.S. without duties. During these shifts, American jobs are being lost.
A senior official from the Biden administration mentioned in a briefing on Thursday that there are likely to be attempts to sidestep any changes made to the de minimis law and that the administration is urging Congress to assist in enacting comprehensive reforms.
Lawmakers from both Republican and Democratic parties have introduced various proposals aimed at narrowing the de minimis exemption. However, it remains uncertain whether legislators can unite around a singular proposition and secure the necessary votes for passage. Meanwhile, industry stakeholders are preparing for various outcomes.
As U.S. retailers contemplate how to compete with Chinese platforms, Shein and Temu have remarked that their utilization of de minimis is not fundamental to their achievements. Shein has expressed openness to modifying the tariff exemption and indicated it will discover alternative methods to meet customer needs if it is removed.
This year, Temu introduced a green button on its website labeled “local warehouse,” showcasing products that are sourced from nearby locations.
