How Trump's tariffs on China delivered a 'double-whammy' to Temu and Shein

By Kate Ainsworth, ABC

It was always a matter of when, not if, Donald Trump would introduce a fresh set of tariffs on his return to the White House.

Within a fortnight of taking office for his second term, the US president cracked down on a measure that puts him at odds with his Reagan-inspired campaign battle cry: "Are you better off than you were four years ago?"

While his tariffs on Canada and Mexico have been given a 30-day reprieve, China hasn't been so lucky, with all Chinese products imported to the US now attracting a new 10 per cent tariff.

At the same time, the US has cracked down on a little-known tax loophole that allows millions of parcels into the country every week from cheap e-commerce retailers, including Shein and Temu.

A cost-of-living crisis turbocharged both companies' presence in the US, and Trump's first presidency ironically helped them gain a strong foothold in the country.

But now, the double-whammy of new tariffs and the suspension of a tax loophole will see everyday Americans pay an even higher price.

One loophole, millions of parcels

Since 2015, Americans have been able to buy items from overseas without getting hit with an import tax - so long as the value of the parcel is under $US800 (NZ$1275).

It operates the same as a duty-free allowance, but it has a more complex-sounding name: the de minimis exemption.

The loophole had been publicly questioned long before Trump's inauguration, with the Biden administration announcing last September that it was looking to take action against the volume of de minimis shipments arriving in the country.

At the time, the Biden administration said the actions were about addressing the "significant increased abuse of the de minimis exemption", with a focus on Chinese-founded e-commerce platforms, such as Shein and Temu.

Data released by the US Customs and Border Protection Agency last November illustrated how big of a problem de minimis shipments had become in the country.

In 2024, the agency estimated it processed more than 4 million de minimis shipments into the US on a daily basis - more than double the volume it had processed in 2021 - with Shein and Temu accounting for more than 30 percent of the total packages.

The sheer volume of parcels arriving in the US has made it impossible for customs officials to examine the shipments and "intercept unsafe and illegal goods".

But Trump's first presidency laid the groundwork for the ballooning to take place, after imposing a series of tariffs on Chinese goods in 2018.

China responded by waiving the export tax Chinese-based companies had to pay its government when sending their goods overseas.

In effect, Chinese companies were no longer paying taxes of 13 percent for every parcel they sent abroad.

Coupled with the de minimis exemption, it meant Chinese businesses were better off when shipping products to the US - and cheap online retailers such as Shein and Temu were well-positioned to strike during the COVID-19 pandemic and cost-of-living crisis that followed.

Trump tariffs, take two

Even before returning to the White House, Trump had said tariffs on China were about stemming the flow of illicit substances into the US - in particular, the synthetic opioid fentanyl.

US customs officials have also commented that the volume of de minimis packages has made it "almost impossible" for them to detect illicit substances.

While targeting the de minimis loophole was not explicitly on Trump's agenda during his presidential campaign or after his election victory, analysts say it was a natural progression of his broader agenda.

"There has been some evidence that suggests that people are using that loophole to be able to import the ingredients of fentanyl into the US, so that's certainly one reason," said Harry Murphy Cruise, the head of China and Australia economics at Moody's Analytics.

"The second is what it means for US retailers. They're often buying from the same factories that Temu is selling from, but they're buying in bulk.

Trump's Secretary of State, Marco Rubio, is also a long-time critic of China and its alleged use of forced labour.

As a senator, Rubio was a lead sponsor for the Uyghur Forced Labor Prevention Act, which bans imports to the US from China's Xinjiang region over claims that the minority ethnic group is subjected to human rights abuses. (China has repeatedly denied the allegations.)

Rubio has previously criticised Shein and Temu over their alleged use of slave labour in their supply chains.

A day after the new tariffs took effect, Semafor reported that the Trump administration was considering adding Shein and Temu to the US Department of Homeland Security's forced labour list.

If that were to occur, it would prohibit goods from the Xinjiang region sold by Shein and Temu from entering the US.

Shein has frequently stated it has zero tolerance for forced labour, and Temu has regularly denied it has links to the practice.

"I think [Trump's] motivations for doing so [suspending de minimis] are probably more around the fentanyl and domestic competition argument, but I certainly think there are many questions still around that forced labour, and Rubio has made that a point to call out," Murphy Cruise said.

Murphy Cruise noted that Trump's decision to impose a universal 10 percent tariff on all Chinese imports to the US would be in addition to past tariffs levied against the country.

Disadvantaging the disadvantaged

The new tariffs and the closure of the de minimis loophole will see Americans foot the bill when their orders from sites such as Shein and Temu arrive in the US.

For example, a $US100 order from Temu would attract an import duty of $US20 - and past research indicates that it is lower-income households that would be disproportionately affected, as they have become increasingly reliant on the cheap retailers.

International shipment data, analysed by economists Pablo Faigelbaum and Amit Khandemwal, signalled a correlation between de minimis packages arriving in the US from China and household incomes.

Their findings, published last October, concluded that eliminating the de minimis threshold would "disproportionately hurt lower-income and minority consumers" and reduce aggregate welfare by up to $US13 billion.

"73 percent of direct shipments imported by the poorest zip codes are de minimis compared to 52 percent for the richest zip codes," they wrote.

"The share of de minimis shipments from China also declines with income: 48 percent for the poorest zip codes compared to 22 percent for the richest.

The pair also examined transaction data from credit cards, and found low-income households were shopping with Shein and Temu at a higher rate than wealthier households, and their business models leveraged the de minimis exemption.

Shein and Temu have separately rejected suggestions that their businesses depend on de minimis in the past.

When contacted by the ABC, representatives for Temu declined to comment on changes to the de minimis threshold and the impact of the tariffs imposed on China by the US.

Shein did not respond before publication.

- ABC