Biden’s Tariff Crackdown Changes Amazon and Walmart’s China Strategy

Under increasing pressure from Chinese retail giants like Shein and Temu, US carmakers Amazon and Walmart have prepared a scheme to avoid tariffs and cut costs — but a new move by the Biden administration could rain on their parade.

For months, these American retailers have been quietly plotting to overhaul their business models with the goal of shipping more goods straight from Chinese factories straight to your door. Doing so would eliminate expensive U.S. warehouses and stores, all while escaping high tariffs by using a little-known loophole in a century-old trade law.

This loophole, known as “de minimis,” allows importers to avoid U.S. taxes and tariffs on shipments worth less than $800. The result? Chinese platforms like Shein and Temu have flooded the market with cheap products, leaving American companies to keep up.

But on Friday, the Biden administration threw a wrench in the works. In a surprise announcement, officials have announced plans to slam the door on many Chinese imports that exploit the de minimis rule — particularly apparel. The crackdown is aimed at stemming the tsunami of duty-free packages pouring into the country, mainly from China.

While the changes won’t happen overnight – the proposal will be subject to industry scrutiny before finalization – the message is clear: the free ride is coming to an end, NY Times reports.

Amazon was preparing to launch a discount service that capitalizes on direct-to-consumer deliveries in Chinainsiders revealed. Walmart, while reluctant to change its model, has felt the heat to consider similar tactics to stay competitive.

“It’s get on board or get left behind,” said Steve Story, executive vice president of customs and international trade at Apex Logistics International. “If you don’t go online and accept this, you will be overshadowed by Shein, Temu and Alibaba.“

Story has admitted helping Chinese sellers avoid tariffs by shipping through Amazon’s fulfillment centers, thanks to a 2020 customs ruling that allows Chinese firms to act as “non-resident importers.” Essentially, they can ship products tariff-free through Amazon warehouses scattered across the US

Traditionally, retailers would ship shipping containers loaded with goods from China to U.S. ports, then truck them to warehouses and stores before reaching consumers. Now, many bypass this route, opting to individually package and ship items directly from China in accordance with the de minimis rule. This method not only avoids tariffs but also the need for extensive storage.

The numbers are staggering. Packages entering the US under the de minimis rule have skyrocketed to more than a billion in 2023, up from just 140 million ten years ago. China is the main contributor, sending more packages than all other countries combined.

American businesses are upset — they say the rules create an uneven playing field because brands with stores and warehouses in the U.S. are subject to higher tariffs compared to those that ship directly to consumers.

“De minimis is like a big tax incentive the US gives you to take your job elsewhere,complained Peter Bragdon, general counsel at Columbia Sportswear.Change the math.“

Mike Hesse, CEO of Nebraska-based RV tow bar manufacturer Blue Ox, has discovered that Chinese knockoffs of his products are being sold on Amazon and making their way into the country via de minimis.

“They’re a safety issue, plus consumers are being tricked into thinking they’re buying an American-made product,” Hesse said. “That’s how it affects me de minimis.”

Some companies have accused Chinese firms of dirty tricks, such as falsifying invoices to slip more expensive items under the $800 threshold or falsifying shipping documents to send bulk goods duty-free.

Meanwhile, some retailers have moved their warehouses to Canada or Mexico. From there, they can quickly and legally ship the items duty-free to the US when orders come in – taking more American jobs with them.

As the Biden administration tightens the screws on China’s de minimis shipments, It is feared that imports from our neighbors could increase as companies look for new loopholes.

Even the Chinese giants are bracing for the impact. Shein says he is open to reforming the tariff exemption and will adapt to keep customers happy. Temu started highlighting products from “local warehouses”, a move seen as a hedge against regulatory changes.

“This is clearly a strategic move to limit exposure to any regulatory changes,” noted Juozas Kaziukenas, founder of e-commerce intelligence firm Marketplace Pulse.

All eyes are now on Washington. While lawmakers on both sides of the aisle have floated proposals to narrow the de minimis exemption, it is uncertain whether they will rally behind a unified plan.

“The reason we would really like to see certainty is so that everyone can plan business accordingly,” said Donald Tang, Shein’s executive chairman, just a day before the administration’s bombshell announcement. “If everything is hanging in the middle … it’s not good for the business planning process.”

For Amazon, Walmart and countless others, the race is on to adapt – or risk being left in the dust.

By Zerohedge.com

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