Key Points:
- Prices on Shein and Temu may rise by up to 20% if the Biden administration closes the “de minimis loophole.”
- The loophole allows packages under $800 to avoid import duties and border scrutiny.
- Shein and Temu claim their low prices are due to innovative business models, not the loophole.
Possible Price Hikes for Shein and Temu
The ultra-low prices that have made Shein and Temu popular with American consumers could soon increase due to new trade regulations. Both companies, known for their budget-friendly $5 T-shirts and $10 sweaters, may see price hikes of at least 20% if changes are made to the de minimis rule. This change was predicted by the House Select Committee on the Chinese Communist Party after launching investigations into the companies.
What is the De Minimis Loophole?
The de minimis exemption allows products valued at less than $800 to enter the U.S. without import duties and with minimal scrutiny. While Shein and Temu argue that their prices are low due to efficient business practices, experts suggest that changes to the rule could significantly impact their pricing strategy.
Shein and Temu’s Response
Shein expressed support for de minimis reform and has joined a U.S. Customs and Border Protection program that increases transparency for its shipments. Both companies, however, have not confirmed whether they will raise prices if the rule changes.
Potential Impact on Competitive Advantage
If the prices of Shein and Temu rise, their edge over competitors like H&M, Zara, Target, and Walmart may diminish. For example, as of June, Shein’s average price for a dress was $28.51, compared to $40.97 at H&M and $79.69 at Zara. A 20% price increase would bring Shein’s prices closer to its rivals, which may reduce its appeal to consumers looking for low-cost fashion.
Investigations and Scrutiny
The Biden administration’s move comes after a year-long investigation into Shein and Temu. The focus was on their use of the de minimis exemption and labor practices in their supply chains. Although Shein acknowledges finding cotton from banned regions in its supply chain, it maintains that it has paid millions in import duties.
Future Outlook for Shein and Temu
Despite the challenges posed by potential price hikes, retail experts believe Shein and Temu could adjust by introducing higher-priced items to retain their competitive edge.