Chinese sellers scramble as US closes e-commerce loophole

Qatar Tribune

3 days ago

Agencies
Washington's decision to suspend the 'de minimis' tariff exemption for all countries – expanding on an earlier move that targeted Chinese shipments – is set to disrupt and ultimately reshape the global cross-border e-commerce sector, analysts said.
The White House announced the order on Wednesday as part of efforts to close loopholes used to evade tariffs and smuggle 'deadly synthetic opioids as well as other unsafe or below-market products' into the United States. It will come into effect on August 29.
In May, the US eliminated the exemption – which had allowed small packages worth less than US$800 to enter the country duty-free – for goods from China.The move aimed to close what many considered a regulatory loophole exploited by Chinese platforms like Temu and Shein to rapidly scale their businesses.Experts said the latest action marked a return to trade normality and left Chinese exporters with limited options: either compete in an already saturated domestic market, or battle fellow Chinese sellers abroad.
'Before, they could source from other countries to get around rules — that's no longer viable, as the pathways to the US market are all blocked,' said Zhuang Bo, global macro strategist at Loomis Sayles Investment Asia, an affiliate of Natixis Investment Managers.
While expected, the move marks a significant setback for China's digital trade dominance, as the whole 'business model was largely driven by Chinese firms, both operationally and in market share', he added.
'We'll likely see Chinese outbound FDI become far more common, as companies seek to maintain market access
Sellers will now either continue the brutal price competition at home or face off with fellow Chinese firms in markets beyond the US.' The most effective solution, Zhuang added, would be to accept slower growth and allow industrial capacity to normalise.
'But as long as national policy still targets high growth, companies will be forced to keep cutting prices to defend market share.'
Chinese foreign ministry spokesman Guo Jiakun said on Thursday that Beijing had 'taken note' of the latest US move. He urged Washington to uphold 'the principles of fair competition' and provide a 'fair, just and non-discriminatory business environment' for all foreign firms.
In early February, Trump sought to revoke the 'de minimis' exemption for low-value parcels from China and Hong Kong, citing trade imbalances. The move was part of an executive order he signed on February 1 that also raised tariffs on Chinese goods by 10 per cent.
While the rule briefly took effect, it was quickly delayed to give US agencies more time to establish systems for collecting duties – effectively pausing enforcement.
The exemption had played a crucial role in driving the growth of China's cross-border e-commerce sector, allowing vendors to send small shipments directly to US consumers without incurring import duties or facing customs checks.
Over the past decade, shipments entering the US under the exemption have surged by more than 600 per cent – from about 139 million in the 2015 financial year to over 1 billion in the 2023 financial year, according to US Customs and Border Protection.
For small Chinese businesses, the news did not come as a surprise. Many have already shifted their focus to the domestic market or diversified to alternative export destinations.