Shein and Temu are in the world's crosshairs

Sydney Morning Herald

22-05-2025

Within the 90-day pause in the wider tit-for-tat tariff war between the US and China, however, the tariff rate was reduced to 54 per cent, with the $US100 flat fee remaining.
The US actions caused Shein and Temu to increase their prices to US consumers and to rethink their business models, diversifying their supply chains to source products from countries facing lower tariffs and, in Temu's case, halting its direct shipping model and scrambling to find US suppliers.
The fear elsewhere is that they would seek to compensate for lower US sales by stepping up their marketing and supply to other economies.
In Europe, the European Union has proposed levying a flat fee of €2 ($A3.50) per parcel on small packages. Europe is already a major and fast-growing destination for low-value exports from China, with 4.6 billion parcels attracting de minimus status last year, 90 per cent of them from China.
That was about twice the volume experienced in 2023 and, indeed, a far greater volume than that experienced by the US, where about 1.2 billion packages – some Congressional estimates are far higher -- originated from within China and Hong Kong last year. (It is difficult to be precise about the volumes because there is so little data collected on the volume and nature of those parcels).
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The EU's draft proposal says the new fee will apply to parcels sent directly to consumers. If they are sent to a warehouse, they would attract a fee of only €0.50. It is easier, and less costly, to process goods and collect revenue from a warehouse than it is from individual parcels at the border.
The de minimus exemptions common to most advanced economies reflect the cost and complexity of imposing and collecting revenue from small parcel imports, indeed that was the original rationale for the exemption which, in the US, dates back to 1938.
With the costs and effort of applying and collecting duties seen as greater than the revenue that might be raised, the parcels were regarded as too insignificant to bother about – until the volumes began soaring in the past few years.
The European approach is essentially designed to recover those costs of administering the regime rather than the revenue-raising, imports-deterring tariffs approach favoured by the US.
Japan has convened a panel of tax experts to consider removing its exemption from duties for parcels worth less than 10,000 yen ($108). It is contemplating applying its sales tax – around 10 per cent – to small parcels.
It's not just the use of what has been exploited as a loophole in tariff and duty arrangements by mainly Chinse exporters that is concerning legislators. Small parcel imports, which aren't inspected, have become a route for illegal drug imports, counterfeit goods and products that don't meet the receiving countries' safety standards.
There's also a concern about the impact the rapidly-growing influx of cheap products from China (and some very sophisticated circumvention of local sales and income tax regimes) is having on domestic manufacturers and retailers.
In the US, even the retail behemoth Amazon was so concerned about the impact of Shein and Temu on its business that it copied them and set up its own direct-to-consumer model, shipping directly from warehouses in China to US consumers.
Shein and Temu are the most visible, and largest, of China's small parcel exporters, so the walls that are being erected to slow or halt their tide of cheap products threaten their businesses.
They are not, of course, the only Chinese companies that have been exploiting the de minimum loophole and it's not just that exemption that is causing concern in other economies.
With China's domestic economy stuttering and domestic demand weak, its factories have been deploying their significant excess capacity into export markets. Even as the volume of exports has surged, export prices have been falling.
That tide of cheap exports – factory-gate prices have been sliding steadily for more than two years – some of them from industries subsidised, directly or indirectly, by various levels of China's governments, is seen as a threat to advanced economies and their domestic manufacturers.
Even without Trump's aggressive trade war on everyone – which threatens to divert China's exports to the US to other markets, particularly Europe – the rest of the world has been starting to consider how to avoid being overwhelmed by the threatened flood of cheap products.
They want to avoid the experience of the 1990s, when the initial impact of China's emergence as the world's manufacturing base wiped out large swathes of western industry and jobs.
Shein and Temu are the most visible, and largest, of China's small parcel exporters, so the walls that are being erected to slow or halt their tide of cheap products threaten their businesses.
China's manufacturing base is now far larger – its share of global manufacturing output is above 30 per cent – and it now produces and exports goods of higher value and in more strategic sectors than it did in the 1990s. Unrestricted imports from China would do considerable domestic economic damage to the rest of the world.
Those exports exploiting the de minimum exemption are, therefore, elements within a larger picture but, given their sheer volume and startling growth rates, not insignificant ones.
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Temu, for instance, racked up more than $1 billion of sales in Australia last year and has been a source of pressure on local online and physical retailers. It, along with Shein, has been cited as an influence in the demise of Wesfarmers' online marketplace, Catch.
Australia abolished nearly 500 'nuisance' tariffs last year because they were too small to matter and too costly to collect.
When it comes to our de minimum exemption for parcels valued at less than $1000, that philosophy might now have to be reconsidered, given that the walls being erected by governments elsewhere could make this open economy even more attractive to Chinese manufacturers.