The Biden administration plans to restrict the use of a trade exemption that has helped Chinese e-commerce firms such as Temu and Shein ship packages to U.S. customers duty-free. The news pushed Temu parent company PDD Holdings stock lower Friday.
Meanwhile, the news could eventually have implications for a longer list of companies, including Amazon, Meta and Etsy.
Under the so-called de minimis exemption, U.S. trade law allows packages valued at $800 or less to enter the U.S. without paying tariffs. The 90-year-old provision has come under greater scrutiny as discount-focused Chinese e-commerce firms such as Temu and Shein have sent billions of packages to the U.S. There were more than one billion de minimis shipments last year, according to a White House statement, compared to 140 million a decade ago.
"The majority of shipments entering the United States claiming the de minimis exemption originate from several China-founded e-commerce platforms," the White House statement said.
The shipments from China are "putting American consumers at risk, undercutting American workers and businesses, and resulting in the importation of huge volumes of low-value products such as textiles and apparel into the U.S. market duty-free," the statement added.
The new rules would bar the de minimis exemption for products subject to tariffs under other rules. That includes textile and apparel products. The rules, however, will first be subject to a public comment period. The Biden administration estimates the exemption would no longer apply to 70% of Chinese textile and apparel imports.
PDD Stock Falls On De Minimis Proposal
Temu has been a top downloaded app in the U.S. since its launch late in 2022. The shopping app offers discounted goods directly from merchants in China.
The rapid growth of Temu helped boost the U.S.-listed shares of its Chinese parent company PDD Holdings last year. Meanwhile, analysts are debating whether Temu is a threat to Amazon. And PDD for a short period surpassed Alibaba as China's most valuable tech company.
Temu's growth, along with that of fast-fashion firm Shein, has also increased scrutiny to the de minimis exemption. More than 120 House Democrats signed a letter Wednesday calling on Biden to close what they called a "dangerous trade loophole."
In a securities filing in April, PDD said its operations could be "materially and adversely affected" if current tariff exemptions "were to become unavailable."
Reached for comment Friday, a Temu spokesman said the company's growth "does not depend on the de minimis policy."
The statement added that Temu is "reviewing the new rule proposals and remain committed to delivering value to consumers."
On the stock market today, PDD stock lost 2.4% to close at 94.99. The slide is adding to a slump for the Chinese e-commerce giant. In late August, PDD stock sank nearly 30% after the company's second quarter results missed revenue estimates.
Beyond PDD: Stocks To Watch Include Amazon, Meta
There are potential stock implications beyond PDD, however. Amazon is reportedly considering launching a Temu competitor that would also ship items directly from merchants in China. Meanwhile, Amazon is part of the National Foreign Trade Council industry group, which has argued that the de minimis policy is boon for consumers.
Amazon did not immediately respond to a request for comment. Amazon stock was mostly traded sideways Friday. Shares closed down a fraction at 186.49.
Meta, meanwhile, has benefited from Temu's massive advertising spending as PDD utilized social media marketing to grow U.S. market share. Temu was by some estimates the largest individual ad buyer on Facebook and Instagram last year. Meta stock closed lower by a fraction at 524.62.
Etsy Stock Jumps
Investors appear bullish that crafts-focused marketplace Etsy could benefit from the changes. The company's stock gained 7.6% to close at 55.65. Etsy Chief Executive Josh Silverman said last year that Temu and Shein were raising the costs of advertising online.
Etsy rallied support for an increase in the de minimis cutoff several years ago, arguing it helps small businesses. At a recent investors conference, Silverman said the de minimis exemption is important. But, he said, the provision is getting "abused by a couple of players in one or two markets," according to a FactSet transcript.
"We think that targeted regulation focused on cracking down on abuse may be very appropriate," Silverman said at the conference. "We just want to make sure that we don't do one-size-fits-all solutions that would hurt the genuine small sellers like Etsy sellers for whom this de minimis exemption was originally created."
In an email, Etsy's Head of Public Policy Jeffrey Zubricki told IBD that the company is "encouraged to see the Administration taking a targeted approach to updating the de minimis framework."
