2025 January ISSUE
CLOSING THE TRADE LOOPHOLES
Written by ANDREW SIA
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From the Desk of the Publisher
While we are reading this article, the Trump administration first raised the tariffs for the low-value parcels from China from 120% to 54%. We can refer this to the “bargaining” between the U.S. and China is Gevena recently. But we don’t know what was reached behind close door with the two largest economies and I think that this can only confuse the market more than what happened earlier on.
Meanwhile, action to close loophole under de minimis rule, has been closed as mentioned above.
Transshipment and country of origin manipulation for Chinese textile products may have shipped through countries like Vietnam, Bangladesh, or Mexico into the U.S. have been aware and further action to be taken.
Shipping through the third countries would benefit from Trans-Pacific Partnership (TPP), United States-Mexico-Canada Agreement (USMCA, and countries that have Free Trade Agreement with the U.S. are going through scrutiny.
Of course, there is always the ethical forced labor concern and legal violations especially in the cotton sourcing.
Major American retailers have been quietly exploring to shift to a business model that can allow them to ship more goods directly to consumers from Chinese factories. We have already noticed that by directing manufacturing from the U.S. to China has caused the diminishing of manufacturing on the U.S. soil since 1990s and worsen the situation in the Rust Belt. We are talking about states like Illinois, Indiana, Michigan, Missouri, New York, Ohio, Pennsylvania, West Virginia and Wisconsin.
This shifting of the business model has been under the study of Amazon and Walmart after they have observed the soaring popularity of Chinese e-commerce platforms like Shein, Alibaba and Temu, both have won the market with their low prices and business practice.
They ship cheap products and have them delivered at the customers’ doorstep to bypass American tariffs on Chinese goods. This further avoid costs associated with brick-and-mortar stores, warehousing, and distribution networks. The U.S. retailers are considering to shift into a similar model to qualify for bypass the century-old trade law known as the de minimis that allows importers to avoid U.S. taxes and tariffs on goods as long as the shipments don’t exceed $800 in value.
So that we know, the number of packages entering the United States each year under the de minimis has been shooting up to one billion in 2023, up from 140 million a decade ago. China is the biggest source, sending more than all other countries combined. We are looking at a substantial di minimis imports of $54.5 billion last year into the U.S.
Even with this going on, Chinese companies still try to use illegal tactics to benefit from de minimis like doctoring invoices so the value is kept below $800 when products may more.
This has triggered the U.S. retailers like Walmart and Amazon to consider to provide a new discount service to ship goods to customers directly, and to bypass any duty and tariffs. Knowing that if they move their warehouses out of the United States and relocate them in Canada and Mexico, they can cut out their costs for their warehouses and distribution centers. This will put more workers out of work on top of what has already happened with the textile and clothing manufacturing.
How did we come to this situation that is taking our business into such a devastating situation? It began with Trump’s administration in 2018 and 2019 when it imposed import tariffs on many Chinese goods that retailers brought through traditional channels. The surge of the online business during the pandemic helped to popularize this business model and it has now made up roughly one-fifth of e-commerce orders.
My opinion about the tariffs doesn’t help to stop importation. It is left to the consumers like us who have to pay the additional cost. Now we noticed that this has triggered another approach illegally and more in grey area that the Chinese tried to get around the restrictions. We have ended up losing the bigger chunk and brought more damage to ourselves. Not to say that to achieve the low cost from China, a lot of labor abuses, violation of human rights and illegal practices are being practiced.
There have been a lot of talks about closing the trade loopholes and I am getting very frustrated that this has not been taking place. It is already said that by eliminating de minimis would result the costs of $12 billion to $14 billion American consumers. It would fall disproportionately on low-incoming people. In the end it is hard to identify those winners and losers.
Shein had generated $32.5 billion in sales in 2023 and all it was doing was shipping small packages from its 5,400 small manufacturers in Southern China. It directed them to 70 million customers in 150 countries. It is using TikTok to show to tens of millions of viewers for what are available there. In 2024, it is expected to do $50 billion.
Temu was projected earlier on for their sales of $17 billion, but it is now looking at $54 billion with its 80,000 third-party vendors. It was only founded in 2022 and it has 234 million customers in more than 70 countries. In a very short period, it has appeared from nowhere and has created a new revenue for Chinese factories and wholesalers to sell products all over the world.