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International Business Times
International Business Times
Business
Shreyashi Chakraborty

US Crackdown On Tax-Free Imports Hits Temu, Shein Hard

The U.S. government's plan to ban tax-free Chinese imports, long in the works, has dealt a blow to consumer-sector giants like Alibaba Group Holding Ltd., Shein, and Temu, which are already grappling with a consumer crisis in their home market.

Shares of Alibaba and smaller rival JD.com Inc. fell approximately 2% Monday as investors reacted to the U.S. plans to tax packages under $800. This move effectively closes a loophole that PDD Holdings Inc.'s Temu and fashion retailer Shein have exploited for years, shipping hundreds of millions of packages to the U.S. annually and gaining market share at Amazon's expense. PDD Holdings Inc.'s stock slipped 2.4% Friday in anticipation of the change, Bloomberg reported.

The de minimis exemption that these Chinese-linked online retail giants have been exploiting allows packages less than $800 to enter the United States without any customs declarations or duties. According to a White House estimate, the number of such shipments has skyrocketed in the past decade, from around 140 million to more than a billion.

The U.S. crackdown threatens the business models of fast fashion giants Shein and Temu, which rely on selling ultra-cheap clothing. Washington plans to end tariff-free imports under $800 may force Shein and Temu to raise prices by 20% or more, ending their era of $5 T-shirts and $10 sweaters, NBC reported.

"If the de minimis exemption is removed, then the cost of products from marketplaces like Shein and Temu will rise. They will still be cheap marketplaces but they won't have quite the competitive edge on price that they do now," Neil Saunders, a retail analyst and the managing director of GlobalData told NBC.

"That may lose them some market share or slow their growth, but they will likely respond by pushing into some higher-priced items to balance out their propositions."

Investors had been anticipating the crackdown due to environmental and illegal import concerns. The European Union has also been raising concerns about the adverse environmental impacts caused by the companies since 2021, with President Ursula von der Leyen denouncing the ultra-fast-fashion industry as "poison." Additionally, U.S. officials fear an illegal drug influx in the country.

The U.S. regulatory changes pose significant risks for both Temu and Shein. Shein is expected to take a harder hit, as these policies can potentially derail its upcoming IPO valued at over $60 billion.

Market analysts say both companies face an uncertain future due to their China links, as the Washington-Beijing ties come under scrutiny ahead of the November elections.

"The clear positive is the potential reduction in competitive pressures from China-based exporters, with impact across marketing cost and demand," Morgan Stanley analysts led by Nathan Feather said, anticipating that U.S. retailers like eBay Inc. and Etsy might benefit from the reduced competition.

However, Shein and Temu downplayed the impact of the crackdown on their business, stating that their growth doesn't depend on the tax-free policy. "Our success is anchored in our unique on-demand business model," Shein said in its statement, adding that it "called for de minimis reform to create a level, transparent playing field – where the rules are applied evenly and equally."

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