The ‘de minimis’ exemption allows Chinese e-commerce companies Shein and Temu to deliver hundreds of millions of packages of cheap clothing without tariffs or inspections.
In August, textile manufacturer HanesBrands announced it would shutter its hosiery plant in Clarksville, Arkansas, in September and lay off 330 workers. The plant, which was brought back stateside from Honduras in 2015, was the last HanesBrands U.S. facility, after it sold a fabric plant earlier in the year.
In October, Gildan announced a textile plant closure in Salisbury, North Carolina, with 250 jobs lost. The same month, Milliken closed two plants in South Carolina, on the heels of shuttering a separate one in North Carolina in May; and Parkdale Mills, a yarn company, closed three of its four plants in Hillsville, Virginia, and laid off 326 workers, after closing a separate facility in Graniteville, South Carolina, in February. Finally, earlier this month National Spinning shut the doors at its last yarn-spinning facility in Whiteville, North Carolina, which had operated for six decades. A hundred National Spinning employees are now out of work.
That’s eight textile plant closures since September, a figure backed up by the National Council of Textile Organizations (NCTO), a top trade group for the industry. While textile manufacturing has been in decline in America for five decades, the supply chain still supported over 500,000 U.S. workers in 2022, according to NCTO figures. So this rapid downsizing is alarming.
The notice of the shutdown at National Spinning brought to the surface a simmering issue that many industry leaders have articulated recently. “The rise of import garments due to de minimis shipments for online shopping has deteriorated sales at retail stores, thereby impacting our domestic supply chains,” National Spinning president and CEO Jim Booterbaugh wrote in a filing to the North Carolina Department of Commerce.
Executives at Milliken and Parkdale Mills also cited de minimis to The New York Times as a primary factor in recent losses. “We’re trying to create more jobs,” said the Parkdale Mills executive, Davis Warlick. “All of that is threatened daily by one bad, ill-informed decision on Capitol Hill.”
I have written in the past about the de minimis loophole, which allows for goods of nominal value to be shipped into the U.S. without tariffs, fees, or inspections. That value was increased in 2016 from $200 to $800; since then, de minimis shipments, particularly from China, have soared to over 685 million in 2022, according to the U.S. Customs and Border Protection (CBP). Some estimates for 2023 put that number over one billion.
The rise of e-commerce is the primary factor in the de minimis boom. Originally, lawmakers’ motivations for increasing the threshold were attributed mostly to Amazon, which uses third-party manufacturers in China that ship products to their warehouses or directly to customers. But some of the biggest beneficiaries today are actually Amazon competitors: Chinese fast-fashion companies Shein and Temu. And they are having such a dramatic impact on the domestic textile industry that even this sclerotic Congress might be willing to take action.
“It’s completely overwhelmed CBP. It has posed an existential threat to companies on the edge anyway,” said Rep. Earl Blumenauer (D-OR), who has been trying to reform de minimis for the past three years. “I have been at times a lonely voice. But I’m not so lonely anymore.”
SHEIN AND TEMU HAVE SEEN REMARKABLE GROWTH in U.S. sales in just the past couple of years. While Shein doesn’t disclose financials, one key partner said this month that gross revenue is well over $30 billion, with sales growing as much as 40 percent in 2023. That’s at the level of other fast-fashion champions like Zara and H&M, and some analysts call it the biggest online-only apparel retailer. Temu didn’t even offer its products in the U.S. until September 2022, but it now has over 100 million active American users of its app, and monthly volume of at least $1 billion as of last June.
Shein and Temu apps “gamify” shopping, offering endless, aggressively priced discounts and promotions that are algorithmically targeted to shoppers, often through casino-style amusements where the winnings are free coupons and credits. The sites are like “if Amazon and TikTok had a baby,” exclaimed New York magazine, and Amazon’s scrambling to sign up Chinese merchants and slash commission fees for third-party sellers of cheap goods shows that the undisputed winner of the e-commerce wars is becoming nervous.
Every U.S. sale costs Shein and Temu significant amounts of money, but the companies have succeeded in undercutting the competition. One of the companies could buy out Wayfair soon and build an even bigger U.S. footprint.
One of the biggest concerns involves using de minimis to hide illegal products.
One reason they can do it is the de minimis loophole. Nearly every product sold on Shein and Temu sits below that $800 threshold, and their dirt-cheap apparel and accessories are directly shipped to the consumer from manufacturers in China. According to a bipartisan report released last June by the congressional Select Committee on China, more than 30 percent of all de minimis shipments into the U.S. come from Shein and Temu. While Shein paid $0 in tariffs on its U.S. sales in 2022, H&M paid $205 million, and The Gap $700 million, according to the Alliance for American Manufacturing. The Wall Street Journal put the tariff loss from de minimis as high as $67 billion.
“De minimis was designed to bring trinkets in from abroad, not to click buttons” on e-commerce sites, said Kim Glas, CEO of the NCTO and a member of the U.S.-China Economic and Security Review Commission.
The lack of inspections matters as much as the lack of tariffs and fees. Critics have alleged that components of fentanyl have entered the country through de minimis shipments. So have goods that don’t comply with consumer product safety. Rep. Blumenauer cited unregulated e-bikes shipped through the mail, with dangerous batteries at risk of exploding. And Shein has been accused of intellectual-property theft.
One of the biggest concerns involves using de minimis to hide illegal products. The China committee’s report alleged that Temu has no mechanism to comply with the Uyghur Forced Labor Prevention Act (UFLPA), which is intended to ban products made with slave labor from Xinjiang from entering the U.S. Temu, which relies on thousands of merchants selling through its platform, even conceded that it does not prohibit manufacturers that operate in the Xinjiang region.
A 2022 Bloomberg report found that Shein products contained cotton from Xinjiang, which would be banned under UFLPA. Reports indicate that roughly 80 percent of Chinese cotton is grown in Xinjiang. Given that Shein and Temu relentlessly bargain with suppliers to maintain their rock-bottom prices, many suspect they keep their prices low by the use of free labor.
“There’s no doubt that some of these supply chains utilize the cheapest labor from all corners of the world,” said Glas. Because de minimis shipments are not typically inspected, Customs and Border Protection can neglect enforcement of UFLPA, and the agency is overwhelmed anyway by the sheer volume of packages. These goods get all the benefit of duty-free shipping and none of the fear of enforcement of U.S. law. “I’ve asked the government, outline for me how many de minimis shipments have been stopped for UFLPA violations,” Glas said. “I don’t know the answer.”
The forced-labor issue in particular has been highlighted at a recent House Homeland Security subcommittee hearing, where both Department of Homeland Security and CBP officials acknowledged that they lack information on de minimis shipments about what the packages contain and where they originate.
A previous hearing in October cited statistics showing total U.S. imports of textiles and apparel in 2022 at $184 billion, yet only $39 million was detained for UFLPA violations. At that hearing, Glas estimated that 72 percent of Chinese cotton products contain cotton originated in Xinjiang.
THE TEXTILE PLANTS THAT HAVE CLOSED LATELY are all in the South. That, combined with conservative belligerence toward communist China, has made combating forced labor a Republican priority. But the UFLPA was a broadly bipartisan bill, and there’s mutual interest in protecting U.S. workers and an industry that proved critical just a few years ago, when personal protective equipment was suddenly needed at the height of the pandemic.
That has given the de minimis issue a quiet yet pronounced bipartisan cast. Blumenauer’s bill, the Import Security and Fairness Act, has eight co-sponsors: four Democrats and four Republicans. A companion Senate bill is being carried by Sens. Sherrod Brown (D-OH) and Marco Rubio (R-FL).
The House co-sponsors include Rep. Dan Bishop (R-NC), who represents Salisbury, the location of the Gildan plant that closed in October. Bishop chaired the subcommittee hearings on UFLPA compliance, where he cited “the rapid increase in de minimis shipments as an avenue for prohibited goods to enter the U.S.” He signed onto Blumenauer’s bill in November. Bishop’s office did not respond to a request for comment.
The China committee, under the leadership of Rep. Mike Gallagher (R-WI), has recommended changes to the de minimis loophole, arguing that the imports cannot be adequately tracked and could facilitate contraband. The recommendation suggested that the $800 threshold for de minimis shipments should be reduced, “with particular focus on foreign adversaries including the PRC.” It also sought stronger CBP enforcement, particularly on transshipments that originate in China but go through a third country.
This is not what the Blumenauer bill would do, however. The Import Security and Fairness Act would fully ban de minimis shipments from nonmarket economies and those on the U.S. trade representative’s priority watch list. China would be subject to both of those restrictions. The bill would also require CBP to collect data on de minimis shipments.
“I credit Mike Gallagher for being able to give the de minimis speech better than I can,” Blumenauer said. “But their solution doesn’t solve the problem.” He argues that adjusting the threshold would simply lead companies to engage in “creative invoicing” to assign large packages a minimal value, or to break packages into segments that would come in below the threshold. Blumenauer contends that cutting China off from de minimis “is the only solution that meets the challenge that we face with these unscrupulous people and dealing with hyper-volume shipments.”
Gallagher has expressed interest in working with the House Ways and Means Committee on the issue, where Blumenauer is a senior Democrat. He told The Dispatch in May that he was “actively scrutinizing the Blumenauer bill,” though he hasn’t endorsed it. But delivering the recommendation has reignited interest in Ways and Means, which has jurisdiction over the issue. Blumenauer has held workshops with Democrats on the committee, as well as discussions with Gallagher and other Republicans.
Powerful lobbying forces hope to maintain the status quo.
There is a possible vehicle to reform de minimis. Congress hasn’t updated or allowed several key trade-related provisions to lapse, including the Generalized System of Preferences (GSP), which gives developing countries lower tariffs to spur investments; the Miscellaneous Tariff Bill (MTB), which allows duty-free entry when a key input is not made domestically; and Trade Adjustment Assistance (TAA), intended to benefit workers displaced by foreign trade (TAA expired at the end of 2022). De minimis reform could be bolted onto such reform in a broader trade bill that both sides would accept.
But an inability to find consensus on those measures in 2022 led to them being tossed out of what became the CHIPS and Science Act. And while Ways and Means has held hearings that highlighted the exploitation of the de minimis loophole and even expressed public interest in a solution, Rep. Jason Smith (R-MO), the Ways and Means chair, hasn’t signed on to the Blumenauer bill.
Glas, of NCTO, agrees with Blumenauer that reducing the de minimis threshold back to $200 would do nothing for stopping a Shein top that costs $5. But she fears that a lack of consensus will damage the effectiveness of Congress’s solution. “This is not a time to do something marginal that won’t economically help and deal with the predatory behavior we’re facing,” she said.
POWERFUL LOBBYING FORCES HOPE TO MAINTAIN the status quo. First of all, Shein doubled their lobbying expenses in the second quarter of 2023, after the China committee’s report came out, using lobbying powerhouse Akin Gump Strauss Hauer & Feld. About 38 percent of the clothing industry’s total lobbying expenditures in the first half of last year came from Shein. Reggie Babin, a former counsel to Senate Majority Leader Chuck Schumer (D-NY), and former Rep. Ben Quayle have lobbied for Shein.
Temu did not respond to a request for comment. A Shein spokesperson told the Prospect, “We are working closely with industry peers and policymakers to help reform de minimis. We believe the exemption needs a complete makeover, which is critical to holding all retailers accountable for responsible business practices.” Neither that statement nor a letter sent by Shein executive chairman Donald Tang last year is specific about what that makeover would look like; it could just refer to lowering the threshold, which Blumenauer and others say would fail to solve the problem.
International shipping companies like FedEx, UPS, and DHL are making fortunes from de minimis packages and also have an incentive to maintain the status quo. FedEx and UPS contribute millions in lobbying annually, and sources in Congress indicate they have been working on the de minimis issue. None of these companies responded to a Prospect request for comment. (The U.S. Postal Service does a lot of last-mile work for Shein and Temu as well; members of Congress have asked USPS for data on de minimis shipments.)
Finally, large business lobby shops like the U.S. Chamber of Commerce have decided to enter on the side of the status quo, even though domestic textile manufacturers and retailers say they’ve been harmed. The National Foreign Trade Council has called de minimis “a vital tax exemption” that benefits small business, reduces supply chain delays, and limits inflation. NFTC rejects the fact that job loss in the textile industry comes from de minimis, and argues that the tariffs from each de minimis shipment are smaller than the cost of inspection. The organization did not return a request for comment.
Rep. Gallagher has dismissed these defenses, telling Haley Byrd Wilt, “The argument boils down to: ‘This is not a good time to confront genocide, for economic reasons and to have cheap textiles … I think your average American wants confidence that when they buy a T-shirt or some article of clothing, it’s not made with slave labor.”
Between the lack of consensus in Congress and the pushback from deep-pocketed industry forces, NCTO’s Glas has offered an option outside of legislation: She says that Treasury could use its own enforcement capabilities.
“It’s clear in the statute that if de minimis is facilitating illegal products or is no longer of minimal value, the administration led by the Treasury Department could do whatever they want to do,” Glas said. “They could stop shipments or put limits around de minimis.” Rep. Blumenauer signaled his support for this option. “If the Biden administration is willing to take steps to crack down on this within their existing authority, I’m all in favor.”
A Treasury Department spokesperson responded with this comment: “Treasury and Customs have been looking closely at the de minimis exception given the significant growth in low-value shipments entering the United States. We are focused on protecting revenue and ensuring compliance with trade laws, including consumer safety protections and the prohibitions on forced labor. We continue working on ways to exercise our existing authority to make sure the de minimis exemption doesn’t provide a means to evasion.”
When National Spinning closed its North Carolina plant, its CEO noted that many of its employees have been with the firm for over 20 years. Glas argues that a federal response to what is sending these workers to the unemployment lines is urgently needed. “We’ve lost eight plants in 12 weeks. Plants that survived the Great Depression, the Great Recession, and COVID are not surviving this.”
Source: https://prospect.org/