China Commission Panel: U.S. Fashion Industry Cannot Survive “De Minimis” Loophole

Helberg said that China e-commerce players Shein and Temu “can copy designs of clothes made here and ship them duty free across the U.S. We can have a fashion industry or we can have de minimis, but we cannot have both,” he said.

Glas noted that the European Union removed de minimis some three years ago; Brazil added taxes to de minimis imports this June. South Africa also banned de minimis in June and has duties on all imports, regardless of value.

The EU changed its de minimis rules in 2021, eliminating it altogether and creating a new online portal for companies who often import via online purchases.

Brazil now imposes a 20% tariff on imported goods purchased online valued at less than $50. In addition, those imported goods will also be subject to a 17% sales tax.

South Africa’s de minimis threshold used to be $27, light years behind the $800 threshold here in the U.S.

Commissioner Aaron Friedberg said, in response to Glas’s comment about warehouses being built to facilitate de minimis, could only be tackled with the help of Mexico and Canada. It meant nothing if the U.S. banned de minimis, only to allow for the same package to be trucked across the border duty free after an overnight stay in a USMCA warehouse across the border.

“We are still in the learning phase on how to track all these products and enforce the law,” said Commissioner Michael Wessel. “We then need to get Mexico on board.”

When asked by someone during the Q&A period about the economic ramifications of removing the de minimis loophole, Commissioner Michael Kuiken said they did not get into that level of detail in their report.

“Clearly a lot of these packages coming in are doing it to avoid tariffs,” said Glas. “They will come in via regular freight and pay the duty if de minimis is removed.”

The Biden administration announced new de minimis restrictions in September. They centered on China products facing tariffs.  But, given the expected increase in packages this year, it is unclear if Customs will be able to stop those packages. Or if senders will somehow relent. For example, retail drones made in China are subject to a 25% tariff. If Amazon imports these drones in high enough volumes to fill its warehouse for future buyers, it will pay the tariff.   But there is a way around this tariff. Importers can buy directly from China instead and simply deal with longer shipping times. Amazon is even investing in building a new marketplace online for U.S. consumers to buy direct from China.

The Commission’s Annual Report, and Tuesday’s conference, was heavy on security and light on global commerce.

Other than removing de minimis, the Commission also recommended removing China’s Permanent Normal Trade Relations status. This would put China into a higher tariff bracket, with an annual review by the President to decide whether to return China to its current Most Favored Nation trading status.

They also recommended outbound investment restrictions on advanced computer technologies, namely those associated with artificial intelligence and equipment needed to make quantum computers. This would likely impact both private markets – such as venture capital and private equity – and public markets, hindering U.S. investment funds buying stocks of companies in that space.

The Commission also recommended tax changes for U.S. investors holding shares in Chinese companies on the Entity List, as opposed to outright bans on owning those shares. This new tax regime for a small handful of publicly traded Entity List names is a cumbersome solution and unlikely to pass Congress.