What is “De Minimis” and Why Does It Need Reform?
There’s a policy fight brewing over whether to close the “de minimis” loophole so successfully exploited by Chinese companies like SHEIN. But… what exactly is de minimis? We explain.
A new bipartisan bill called the Import Security and Fairness Act aims to reform the “de minimis” threshold for imports entering the United States. We’ve come out in support of the legislation, with Alliance for American Manufacturing President Scott Paul labeling the current de minimis threshold as “excessive, wildly misaligned with many of our trading partners, and invites wrongdoing.”
But unless you are an expert in trade law, understanding de minimis and the need for reform can be tricky. Here’s a helpful primer on what it is — and why we are asking folks like you to write their Members of Congress in support of the legislation.
First things first: What is de minimis?
De minimis is a legal term meaning “too small to be meaningful.” But in recent years, the exploitation of de minimis has allowed it to become especially meaningful.
In theory, the de minimis threshold is designed to simplify the imports process by allowing packages worth $800 or less to enter the country duty-free. The idea is to make it easier for people to bring small items into the country, like tourists bringing home souvenirs from trips abroad. But in recent years, importers have exploited de minimis.
O.K, so how do importers exploit de minimis?
Essentially, importers that sell huge quantities of goods from China are using direct-to-consumer shipping to both avoid paying tariffs and dodge U.S. Customs inspections.
The most well-known example of this has been SHEIN, the fast fashion e-commerce retailer that’s conquered the fashion retail landscape. There’s no doubt de minimis has helped it rise to the top.
SHEIN ships its products directly to consumers from China, and since SHEIN clothes are so cheap, individual packages are nearly always worth less than $800. SHEIN paid $0 worth of import duties in 2022, even though SHEIN accounted for 50% of all U.S. fast fashion sales that same year. In comparison, H&M paid $205 million; the Gap paid $700 million.
Not only is that unfair to other importers who pay their fair share of duties, it also means U.S. policy is effectively underwriting SHEIN’s success at the expense of American manufacturers and workers, who are forced to compete against players like SHEIN in an already challenging environment. Given SHEIN’s other bad practices — ties to force labor, use of sweatshops, damage to the environment, theft of intellectual property, products containing substances like lead — it is simply outrageous that the U.S. is handing the brand such a clear advantage.
Is it just SHEIN exploiting de minimis?
Nope. Fellow Chinese e-commerce retailer Temu also is quickly gaining market share by employing the same strategy, and the two brands together account for around 30% of all de minimis packages that entered the United States in 2022. About 62% of all de minimis packages come from China, but it isn’t just Chinese retailers taking advantage of de minimis. Amazon also has used the loophole to avoid tariffs, as have brands like Wayfair.
Aside from dodging tariffs, are there other concerns about the de minimis loophole?
By exploiting de minimis, companies like SHEIN and Temu also stand accused of dodging enforcement of the Uyghur Forced Labor Prevention Act (UFLPA), which bans imports of all products from China’s Xinjiang region, given the ongoing genocide happening there. A recent congressional investigation was especially critical of Temu when it comes to UFLPA compliance, and argued that de minimis reform is needed to begin to address the problem.
Is there a plan to close the de minimis loophole?
There’s bipartisan momentum on Capitol Hill to do so. The Import Security and Fairness Act, introduced earlier this month in the House by Reps. Earl Blumenauer (D-Ore.) and Neal Dunn (R-Fla.) and in the Senate by Sens. Sherrod Brown (D-Ohio) and Marco Rubio (R-Fla.) would prohibit goods from countries that are both non-market Economies and on the U.S. Trade Representative’s (USTR) Priority Watch List from using de minimis (looking at you, China). The bill also would require U.S. Customs officials to collect more information on de minimis shipments and ban bad actors from using it.
Who is supporting the legislation?
Along with us here at the Alliance for American Manufacturing, the bill has the backing of unions like the United Steelworkers and AFL-CIO. Others expressing their support include the Citizens Trade Campaign, Coalition for a Prosperous America, Communications Workers of America, IBEW, International Association of Machinists and Aerospace Workers, National Council of Textile Organizations, PeopleForBikes, Public Citizen, ReThink Trade, U.S. Footwear Manufacturers Association, and United Brotherhood of Carpenters and Joiners of America.
Is there any opposition?
Big companies that have gotten away with gaming the system don’t tend to just step aside when there’s an effort to force them to play by the rules. That certainly seems to be the case here. SHEIN is mounting a PR push that has drawn much-deserved scrutiny, but may ultimately succeed in slowing things down.
Meanwhile, groups like the Chamber of Commerce are defending de minimis, with one official telling the Associated Press it “really wasn’t worth the trouble” to collect duties on these packages. That argument is laughable, given that the Wall Street Journal — hardly an anti-business publication — called the current de minimis policy a “$67 billion tariff dodge that’s undermining U.S. trade policy.” It’s also worth pointing out that the U.S. is an outlier when it comes to de minimis; most countries have far lower thresholds. China’s de minimis threshold in 2021 was $8.
But still, there’s a lot of money at stake — expect opposition to these legislative efforts to mount.
What can I do to help?
That’s a great question, my friend. The No. 1 thing you can do is tell your lawmakers to sign onto the legislation. There’s no doubt Members of Congress are going to hear from lobbyists and special interest groups demanding that the status quo remain in place. Make sure that they also hear from folks like you!