The Real Cost of Cheap Goods
There’s more logic behind a 95¢ top than just making you want it. While plenty of fast fashion brands manufacture their clothing for a lower cost in China, mainly American and European companies seem to pay tariffs for them. Popular Chinese companies, such as Shein and Temu, use tight margins to exempt themselves from both import duties and customs checks.
The U.S. Customs and Border Protection trade de minimis import exemptions allow shipments below $800 in value to come into the United States without import fees or checks for forced labor — which both companies have been suspected of using in the past.
De minimis exemptions are fairly common. They first began in 1938 so that Americans could mail low-value gifts to friends and relatives from abroad. Today, many leading countries have thresholds only after which incoming shipments are subject to duties. Its advocates argue that it allows both the global supply chain to move faster and smaller businesses to compete. Yet critics of this policy say that it is exploited by larger e-commerce companies who can manufacture their goods at a suspiciously low cost and send them directly to consumers. While $800 worth of goods at a time — up from $200 in 2016 due to increased volumes of trade and inflation — may not seem significant to tax, it amounts to large losses over time. The Wall Street Journal reports that the known value of de minimis imports increased from $40 million in 2012 to $67 billion in 2020.
Chinese companies ship many of these low-value goods — and benefit most from the loophole for them. American retailers H&M and Gap spent approximately $900 million on import duties to their warehouses and stores last year. Shein and Temu, whose business model relies on storing goods in China, Mexico, and Canada before they are sold, paid none. Indeed, the two shopping websites alone account for 30% of the 210 million packages sent under the de minimis rule last year. It’s no wonder that both companies have seen astronomical growth in recent years.
While Chinese goods can pass through U.S. borders with less scrutiny, the same is not true for us elsewhere. China subjects any imports above $6.85 to both tariffs and customs checks, an amount which American companies regularly surpass due to their specific export categories and higher labor costs. Congress, increasingly concerned by this discrepancy and the rise of specific Chinese retailers, wants to intervene. Just this past summer the House Select Committee on the Chinese Communist Party investigated Shein and Temu for exploiting both the de minimis exemption and their labor force.
It is unclear whether their report will lead to any change in our trade agreement(s) with China or the de minimis rule in general. What we do know is that the cost of cheap goods is always passed down to someone else if not the consumer — and more likely than not, it’s the workers.
