House Ways & Means Committee Blasts China’s Shein, De Minimis Rules, And TPP Makes a Comeback

The Trade Subcommittee at House Ways & Means heard from four witnesses on Thursday to discuss China and two things stood out. First the good news: so-called de minimis rules are finally being looked at seriously as a backdoor around tariffs, sanctions, and surely any normal port duties. That’s got to change. The bad news: one too many Representatives are toying with joining the CPTPP before China does.

The hearing, titled “Supporting U.S. Workers, Businesses, and the Environment in the Face of Unfair Chinese Trade Practices” showed bipartisan support for going after China, but there evidence in this hearing that members were growing impatient, and seeing more talk, less action. This was one of the first hearings this year where any Committee members voiced concern with the Biden administration’s trade policy towards China.

Chairman Earl Blumenauer (D-OR) started off the hearing by saying he was one of the House leaders who voted to get China into the World Trade Organization. He hoped that would change their ways, make them more like one giant Japan or South Korea, perhaps. That’s been the argument now for at least the past five years. Now the Congressman has changed his tune. “We have to take a more assertive and aggressive approach,” he said.

He brought up Shein, an online retailer which is sold to American teens by its spokesperson Katy Perry. In essence, Shein is the virtual Chinese shopping mall for teens. Not that that matters all that much anyway, considering half the items at H&M are made in Asia. But one thing Shein has that H&M doesn’t is the benefit of being able to sell goods to Americans duty-free under our de minimis laws. Anything brought into the country that costs under $800 is duty-free.

“Shein has created a business model that exploits the de minimis rule to avoid paying ay duties, all of which undercuts American companies,” he said, wearing his signature bow tie and large bicycle pin on his sport coat. “Shein is part of a Chinese textile industry that counts on forced labor in Xinjiang, too,” he said.

Last year, some 2 million packages a day were qualified to enter under de minimis. Expectations are for it to quadruple this year, Blumenauer said without providing source details.

Kimberly Glas, President & CEO, National Council of Textile Organizations, said de minimis should be eliminated.

“Congress should look at disqualifying e-commerce shipments for de minimis completely. This is not just Shein, there are other e-commerce platforms taking advantage of this loophole,” she said, without mentioning the biggest beneficiary of them all – Amazon, which is increasingly a platform for China third party sellers.

It’s unlikely that de minimis will go away for e-commerce altogether. So Glas had a more realistic approach for Congress to consider if they serious about stopping American e-commerce from being fully Chinese. “We need to reduce or de minimis levels to be in line with international standards. China’s de minimis level is $7.”

Read Kim Glas’ testimony here.

Some Representatives on the Committee said Section 301 trade tariff exemptions should happen next year and also called for jump-starting the Transpacific Partnership, a NAFTA on steroids that is being sold by multinationals as a way to access a new market for American goods.

“I supported these tariffs, but they were not meant to be permanent, and some are hurting the economy and not changing China’s behavior,” noted Clete Willems, a partner at Akin Gump. “Maybe more targeted tariffs would be better. This is not a free pass or about eliminating all tariffs. I also think the U.S. should join CPTPP and block China’s attempt to get in. If forced to choose between us and China, those countries will welcome us with open arms,” he said.

Read Clete Willems testimony here.

The biggest economies in that region already have bilateral trade agreements with the U.S. – including South Korea, Australia, and Japan. The U.S. is not missing massive market opportunities in Southeast Asia. In fact, Southeast Asia has already become an outpost to multinationals already, including China multinationals. Joining TPP won’t kick China out of there.

Moreover, given the strength of the dollar against currencies in the old Asian Tiger nations, there is little those countries would be importing other than perhaps farm commodities, oil and gas.

Roy Houseman, the Legislative Director for the United Steelworkers, used his time on camera to talk about the trade provision in the U.S. Innovation and Competition Act, which called for a total overall of Section 301 tariffs and how they can be applied in the future.

“Section 301s highlighted multinational corporations reliance on China’s manufacturing,” he said. “Also, the last-minute including of the Generalized System of Preferences (GSP) creates concerns for us. Why should we give a tariff preference for a Chinese state-owned firm in a third-party country?” he asked.

See Roy Houseman’s testimony here.

Forced labor also came up.

Rep Linda Sanchez (D-CA). “The evidence of forced labor in China is clear, it’s deplorable, it’s a violation of basic human rights, and quite frankly, it’s unacceptable.  We have to do everything we can to fight forced labor. Not only is it antithetical to basic human rights, but it undermines our ability to compete on a fair and even playing field. We need an enforceable approach to China and deliver higher labor standards,” she said.

Rep. Tom Suozzi (D-NY) said immediately after: “We should pass the (Uyghur) Forced Labor Prevention Act, stop importing those goods from China, and make some of it here in the U.S. or for textiles maybe you go to Honduras and Guatemala. Let’s move the market from China and help markets in our hemisphere. Is that a good idea or am I crazy?”

“I agree,” Glas said. “We want to ban all products coming from Xinjiang. There are retailers trying to get out of Asia right now because of Xinjiang and now is the time to reshore and onshore those supply chains.”

Forced labor has made it into provisions in a number of bills, including USICA, but it calls for more studies.

Rep. Danny Davis (D-IL) said when he talks to his constituents about China, they all have their own ideas on what to do. “Some stay put sanctions on companies that have stolen IP; form a coalition with Europe and Japan to push back and not allow products to enter the U.S. from companies that practice forced labor; and of course buy American made in terms of what we can do ourselves. I hear a lot of things. What is the most practical to do?”

“We will never be able to limit China’s capacity in the global marketplace; they are going to continue to be a pervasive player no matter how many guardrails we can put up,” said Glas. “Some practical considerations – closing de minimis loopholes and ban cotton textiles from all of Xinjiang. We are not giving Customs (CBP) the resources to do this,” she said. “We should be holding daily press releases about all the stuff they are stopping at the ports.”

Lastly, some praise for unilateral enforcement instead of waiting for the Europeans.

Rep. Tom Rice (R-SC) said, “It seems to me that every meeting we have about China, we have the same issues. We talk about all the loopholes they exploit. We need unilateral enforcement.”

Rep. Jodey Arrington (R-TX) mimicked Rice’s sentiment. “We all agree with so many things and all the threats but getting to the point of doing something about it might be more complicated, I don’t want to oversimply it. But at the end of the day what is needed, and is lacking on both sides of the aisle, quite frankly, is the political will to do something about it.”