Biden-Harris cracks down on Shein, Temu as retailers prepare for more tariffs with Trump
The Biden-Harris administration is cracking down on a popular loophole used by Chinese retailers while US companies prepare for the possibility of more tariffs after the 2024 election.
On Friday, President Biden announced plans to crack down on the de minimis exemption, which allows items that are $800 or less to be imported into the US without tariffs. This has enabled China-founded e-commerce platforms like Shein and Pinduoduo's (PDD) Temu to ship small packages directly to American consumers without paying tariffs.
The number of shipments that have used the exemption has jumped from nearly 140 million to over one billion per year over the last 10 years, per the administration.
As a result, the administration believes "U.S. textile and apparel manufacturers are facing unfair competition," as domestic companies who import goods into US warehouses do pay tariffs.
A Temu spokesperson told Yahoo Finance that its mission is to "offer consumers a wider selection of quality products at affordable prices" and do so "through an efficient business model that cuts out unnecessary middlemen, allowing us to pass savings directly to our customers."
In a statement, a Shein spokesperson said, "Shein makes import compliance a top priority, including the reporting requirements under U.S. law with respect to de minimis entries. Our success is anchored in our unique on-demand business model, which allows us to bring customers the styles they want, efficiently and at an affordable price."
Tariffs have already been on the minds of retailers as the 2024 election looms. Former President Donald Trump is floating a 10% tariff on all imports and 60% on Chinese imports, while Vice President Harris is expected to continue Biden's approach with targeted, selective tariffs.
Retailers are considering either raising prices or diversifying their supply chains to confront the potential challenge.
"It's the choice between sustaining margins and being able to continue to deliver innovation and comfort; we may have to take action on price," Skechers (SKX) CFO John Vandemore told Yahoo Finance at Goldman Sachs' Global Retailing conference last week.
Vandemore said while diversifying its production capacities outside of China "has long been part of the plan," China is still a significant manufacturing base with loyal partners.
SharkNinja (SN) CEO Mark Barrocas said the company has been diversifying its supply chain outside of China for the last five years.
"The majority of that product is able to be made today outside of China ... We intend to have all of our US production made outside of China by the end of 2025," he told Yahoo Finance at the conference.
Urban Outfitters (URBN) also decreased its exposure to China, with only 10% of its own brand production coming from the country by next year, CFO Francis Conforti said at the conference.
CEO Stuart Haselden of the outdoor apparel company Arc’teryx, which is owned by Amer Sports (AS), said 20% of its production is in mainland China, but its "supplier base is very diversified geographically."
Many economists say Trump's proposed tariffs will hike up prices for households. The Peterson Institute for International Economics forecast that his ideas would cost a middle-income family an additional $1,700 each year. The Center for American Progress Action, a left-leaning organization, estimates it could cost an additional $3,900 dollars for a typical family.
Lower-income households could be hit harder because they "spend a higher proportion of their income" on everyday goods, UBS said in a report.
Goldman Sachs managing director Kate McShane told Yahoo Finance if Trump's tariffs from 2018-2019 were an indication, companies are likely to raise prices if more were added.
"If there were to be tariffs, I think it would be inflationary for most retailers. In the past, what we've seen from tariffs is that prices go up," she said.
According to UBS, more companies may be willing to pass on the cost now, as they think that consumers are more adapted to price changes.
"In 2018, companies along US supply chains appeared to be nervous that they could not pass on price increases, and part of the tariff increases meant squeezed margin," the firm wrote. After several years of high inflation, "the psychology of companies" may have changed, making it easier to increase prices.
UBS also debunked a common misconception that a 10% tariff would lead to a 10% increase in prices; the firm projects it would be a roughly 1% bump instead.
"In 2023, imports of goods into the US were the equivalent of 12.7% of GDP. Had a universal 10% additional trade tax been applied to those imports, and had it been passed along supply chains to the consumer, that tariff would have added 1.3% to price levels in the US economy over the subsequent quarters," the report said.
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.