In a significant shift in its business strategy, Temu has announced it will cease direct sales of products imported from China to customers in the United States. From now on, all transactions on its platform will be facilitated by “locally based sellers,” with orders fulfilled from within the US.
This decision comes in response to the closure of a duty-free rule that previously allowed low-value packages to be shipped without incurring duties or import taxes. Temu, along with its competitor Shein, had benefited from the so-called “de minimis” exemption, which allowed for the direct sale and shipment of items valued at less than $800.
Impact of regulatory changes on US operations
Temu has been actively recruiting American firms to join its platform, emphasizing that this new approach is designed to empower local merchants, enabling them to reach a wider customer base and expand their businesses. “All sales in the US are now handled by locally based sellers, with orders fulfilled from within the country,” the company stated.
Advocates of the de minimis exemption argue that it simplified the customs process for low-value shipments. However, both former President Trump and current President Biden have criticized it for undermining American businesses and facilitating the smuggling of illegal goods, including narcotics.
Understanding the de minimis exemption
The term ‘de minimis’ originates from Latin, meaning “of the smallest.” It refers to a US trade regulation established by Congress in 1938, designed to minimize the costs associated with collecting small import duties. In recent years, this exemption allowed retailers to deliver packages valued under $800 without the burden of taxes or duties. According to the US Customs and Border Protection (CBP), shipments that fell under this exemption represented over 90% of all cargo entering the US.
Both Temu and Shein have leveraged this loophole to significantly increase their customer base in the US, attracting millions with marketing campaigns that highlighted their competitive prices. However, following the recent changes in global trade policies, both companies indicated they would be adjusting prices to accommodate rising operational costs.
“The growing volume of de minimis shipments makes it increasingly difficult to target and block illegal or unsafe shipments,”
Despite initial attempts by Trump to close the loophole, the suspension faced challenges as customs officials, delivery services, and online retailers struggled to adapt to the sudden changes. The recent executive order aims to address the illegal importation of synthetic opioids, such as fentanyl, which have surged into the US through deceptive shipping practices involving low-value packages.
As consumers prepare for the implications of these changes, packages arriving in the US from mainland China and Hong Kong will now incur a tax rate of 120% for items valued at up to $800, or a flat fee starting at $100, which is set to increase to $200 by early June.
The American Action Forum anticipates that the elimination of the de minimis exemption could result in an additional $8 billion to $30 billion in costs annually, which would ultimately be passed on to consumers.
Similar moves are being considered internationally, with the UK and EU also reviewing their low-value import rules, potentially leading to increased prices for consumers in those markets as well. In the UK, the threshold for tax-free imports currently stands at £135, while the EU has proposed scrapping exemptions for parcels worth less than €150.
As US border officials brace for the repercussions of these regulatory changes, there are concerns that dismantling the de minimis exemption may do little to mitigate drug smuggling and could further overwhelm already stretched border resources.