In Depth: Trump Ends an Era for Shein and Temu

For China's cross-border e-commerce giants, the era of rapid expansion in the U.S. may be coming to an end. [para. 1] U.S. President Donald Trump ended the de minimis tax exemption for small parcels from China valued under $800 on February 1, effective February 4. This exemption had been a crucial element in the business models of Chinese e-commerce platforms like Shein, Temu, AliExpress, and TikTok Shop, allowing them to ship directly to U.S. consumers without incurring tax. [para. 2][para. 3] The immediate fallout from this policy change was chaotic, with Chinese merchants and logistics firms scrambling to adjust, causing air cargo demand to collapse and a massive backlog at U.S. customs, leading to postal service disruptions. By February 7, the Trump administration temporarily suspended the policy to allow time for establishing adequate processing systems. [para. 4][para. 5]

The de minimis exemption, initially introduced in 1930 and raised from $200 to $800 in 2016, was leveraged by these platforms to cut costs and accelerate shipping through a full-consignment model. This saw shipments skyrocketing from 139 million a year in 2015 to over 1.36 billion in 2024. Temu and Shein accounted for over 30% of all de minimis packages shipped to the U.S., which alarmed U.S. lawmakers concerned about the impact on domestic businesses. [para. 6][para. 7][para. 8][para. 9] Following Trump's executive order, the U.S. announced that all shipments from China would need declaration and taxation, overwhelming the customs system, with the USPS temporarily suspending package acceptance from China due to a massive backlog. [para. 9][para. 10] A logistics solutions provider indicated that U.S. institutions were unprepared for the surge in taxable shipments, leading to a collapse in air freight rates and a significant drop in air cargo shipments from China by about 50%. The policy was formally suspended on February 7, offering a reprieve while preparing a more systematic approach to small-parcel taxation. [para. 11][para. 12][para. 13][para. 14]

The new taxation policy is expected to increase duties and fees and extend processing times, impacting U.S. consumers used to fast delivery times. [para. 15] Analysts predict tariffs on Chinese small parcels could range from 25% to 30%, dramatically increasing costs for merchants and consumers. A new processing fee will also require detailed documentation for shipments. Some Chinese logistics firms have started pre-collecting tariff deposits and charging customs clearance fees, affecting merchants' profit margins. Small merchants are particularly vulnerable to these new tariffs, as they lack the capacity of larger retailers to transition to warehousing in the U.S. The Chinese government has been encouraging overseas warehousing, but this method extends the cash-flow cycle significantly, placing financial strain on small merchants. [para. 16][para. 17][para. 18][para. 19][para. 20]

Following the removal of the tax exemption, sales volumes for platforms like Shein and Temu have plunged significantly, with Shein’s sales dropping by 41% and Temu's by 32% in just a few days. Shein's fast fashion model relies on quick logistics, which will be disrupted by the new tax policies. Thus, these platforms are now exploring other markets to reduce their dependency on the U.S. [para. 22][para. 23][para. 24] Both Temu and Shein are expanding into Europe, leasing warehouse space in Poland and launching in new European markets like Spain and Ireland. Operating in Europe poses its own challenges, including strict regulatory compliance and tax requirements, making it more costly and complex than operating in the U.S. [para. 25][para. 26][para. 27]

The European Union is considering changes similar to the U.S., including removing the tax exemption for low-value imports, revealing the broader global trend of tightening regulations on Chinese e-commerce platforms. [para. 28][para. 29]