US tariff spike hits China's small parcels, squeezing exporters
FILE PHOTO: Shein logo and the company's web shop are seen in this illustration taken, May 16, 2024. REUTERS/Dado Ruvic/Illustration//File Photo
US tariff hikes on small packages from China triggered a slump in shipments last month, contributing to a huge drop in bilateral trade and roiling exporters like Shein Group Ltd.
The value of small parcels sent from China to the US fell to just over $1 billion in May, the least since early 2023, according to customs data released Friday. The 40% plunge from the same month last year marks a sharp reversal for a booming trade route, coming just as the US government eliminated a long-standing tariff loophole.
The policy shift is upending the business models of fast-fashion titan Shein and its rival Temu, which relied on the exemption to send goods directly to US customers free of tariffs. It's also squeezing thousands of small merchants who relied on the model as a low-cost entry into the world's largest consumer market.
"Without the exemption, it would mean tougher business to us, and much fewer options for consumers, and potentially higher prices,' said Wang Yuhao, whose Kunming-based incense company, Shantivale, recently began selling to the US. "This is a lose-lose situation.'
For the entrepreneur, the new tariffs and logistical fees of direct shipping now would mean losing $2 on every parcel. To avoid the additional cost, Wang said he has pivoted to bulk shipments to US warehouses, a move that demanded an upfront investment of more than 100,000 yuan ($13,800) for inventory and storage.
The source of the disruption is the end of the "de minimis' rule exemption for Chinese and Hong Kong shipments. Previously, packages valued under $800 could enter the US duty-free. Since May 2, those parcels face tariffs as high as 54% after the Trump administration moved to close what it deemed an unfair trade loophole.
The impact on the largest players was swift. Shein raised US prices on items from dresses to kitchenware ahead of the hike to cover the costs of the higher tariffs, according to data compiled by Bloomberg News. In the week after the tariffs took effect, both Shein and Temu saw double-digit sales declines, an early sign the punitive measures are eroding their popularity.
Even with the drop, the US remained the largest single destination for China's small parcels, the data showed. Malaysia followed by taking more than $700 million worth of such shipments last month.
Globally, small parcel shipments rose 40% in May compared to a year ago, with Belgium, South Korea, Hong Kong and Hungary among other large destinations. - Bloomberg
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