Biden-Harris takes action against Shein and Temu as retailers brace for more tariffs with Trump

The Biden-Harris administration is cracking down on a popular loophole used by Chinese retailers as U.S. companies brace for the possibility of higher tariffs after the 2024 election.

On Friday, President Biden announced plans to tighten the de minimis exemption, which allows items that are $800 or less to be imported into the U.S. without tariffs. This allowed e-commerce platforms founded in China, such as Shein and Pinduoduo (PDD) Temu, to send small packages directly to American consumers without paying tariffs.

The number of shipments using the exemption has grown from nearly 140 million to more than a billion a year over the past 10 years, according to the administration.

As a result, the administration believes that “US textile and apparel manufacturers face unfair competition” because domestic companies that import goods into US warehouses pay tariffs.

A spokesperson for Temu told Yahoo Finance that its mission is to “provide consumers with a wider selection of quality products at affordable prices” and to do so “through an efficient business model that cuts out unnecessary middlemen, allowing us to pass the savings directly to our customers.”

In a statement, a Shein spokesperson said: “Shein makes import compliance a top priority, including reporting requirements under US de minimis entry law. Our success is anchored in our unique on-demand business model, which enables us to bring customers the styles they want, efficiently and affordably.”

Tariffs have already been on the minds of retailers as the 2024 election looms. Former President Donald Trump is proposing a 10 percent tariff on all imports and 60 percent on imports from China, while Vice President Harris is expected to continue Biden’s approach of targeted, selective tariffs.

Retailers are considering either raising prices or diversifying their supply chains to deal with the potential challenge.

“It’s the choice between maintaining margins and being able to continue to offer innovation and convenience; we may have to take action on price,” Skechers ( SKX ) CFO John Vandemore told Yahoo Finance at Goldman Sachs’ retail conference last week.

Vandemore said that while diversifying its manufacturing capabilities outside of China “has long been part of the plan,” China is still a significant manufacturing base with loyal partners.

SharkNinja ( SN ) CEO Mark Barrocas said the company has diversified its supply chain outside of China over the past five years.

“The majority of this product can be made outside of China today … We plan to have all of our U.S. production outside of China by the end of 2025,” he told Yahoo Finance on the conference call.

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Urban Outfitters ( URBN ) has also reduced its exposure to China, with only 10 percent of its own-brand production coming from the country by next year, Chief Financial Officer Francis Conforti said on the conference call.

CEO Stuart Haselden of outdoor apparel company Arc’teryx, which is owned by Amer Sports ( AS ), said 20 percent of its production is in mainland China, but “its supplier base is very geographically diverse “.

Many economists say Trump’s proposed tariffs will raise prices for households. The Peterson Institute for International Economics estimated that his ideas would cost a middle-income family an additional $1,700 each year. The Center for American Progress Action, a left-leaning organization, estimates it could cost an additional $3,900 for a typical family.

Lower-income households could be hit harder because they “spend a higher proportion of their income” on everyday goods, UBS said in a report.

Goldman Sachs managing director Kate McShane told Yahoo Finance that if Trump’s 2018-2019 tariffs were any indication, companies could raise prices if more are added.

“If there were tariffs, I think it would be inflationary for most retailers. In the past, what we’ve seen from tariffs is that prices go up,” she said.

According to UBS, more companies may be willing to pass on costs now because they believe consumers are more attuned to price changes.

“In 2018, companies along U.S. supply chains appeared to be nervous about not being able to pass on price increases, and some of the rate hikes meant a tight margin,” the firm wrote. After several years of high inflation, “corporate psychology” may have changed, making it easier for prices to rise.

UBS also debunked a common misconception that a 10% tariff would lead to a 10% increase in prices; the firm projects that would be about a 1% increase.

“In 2023, US imports of goods were the equivalent of 12.7% of GDP. If a universal additional trade tax of 10% were applied to these imports and passed on to the consumer along the supply chains, that tariff would be added. 1.3% from the price level in the US economy in the coming quarters,” the report said.

Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @Brooke DiPalma or email them at [email protected].

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