Recently, members of the US Congress have set their sights on international e-commerce: Both houses of Congress are facing a legislative proposal aimed at curbing the flow of e-commerce imports by eliminating tariff and tax exemptions for goods worth less than $800 (known as the minimum tax system).
The two bills introduced in the House and Senate, while not harmonized, have the same goal: to create barriers to e-commerce imports, especially from China.
The tariff exemption policy, known as the "minimum rule," exempts individual U.S. consumers from tariffs on imports worth $800 or less.
Online platforms such as Shein, which was founded in China but is based in Singapore, have been accused of "using minimum rules to evade tariffs and import illegal items," a charge Shein strongly denies.
Brian Bourke, chief operating officer of Seko Logistics, said the legislative moves "run counter to U.S. customs policies that have sought to ease trade restrictions in recent years." In 2016, the tariff exemption minimum was raised from $200 to the current level of $800. The move also reduces the burden on customs authorities.
He explained that while there are legitimate concerns about illicit trafficking in counterfeit products and consumer health and safety products, erecting trade barriers is not an adequate solution.
Instead, he said, data requirements should be refined to give customs a better understanding of goods entering the United States. He added that such moves could actually backfire.
Rick Watson, chief executive of RW Commerce Consult, warned that a similar move a year ago failed to gain traction, but this time the proposed changes were more likely to make progress. These days, he adds, American politicians want to be seen to be taking a tough line on China and supporting American manufacturing.
The proposal before the House suggests that countries other than China and other non-market economies could continue to enjoy the U.S. minimum exemption if they raise their own thresholds to the same level. Most countries have much lower minimum exemptions than the U.S., and Watson believes many will not agree to a significant increase, so this aspect could derail proposed legislation.
The proposal would further limit imports eligible for minimum exemptions to commercial carriers such as FedEx, UPS and DHL, not the postal service USPS. Brian Bourke, chief commercial officer at Seko Logistics, said U.S. companies with warehouses in China and Hong Kong could be affected.
However, he added: "There is still a lot of negotiation to be done before this legislation can be passed." There is room for industry associations and trade groups to be part of the discussion."
Either way, it seems clear that such proposals are fueling a growing interest in nearshore outsourcing. "Nearshore outsourcing comes up a lot in conversations with customers," Bourke notes. "Companies that have been sourcing in China are adopting a China +1 [other source country] strategy."
This was a factor in Seko Logistics' decision to open branches in Vietnam, Taiwan and Thailand, but the company is also increasingly looking to Canada, Mexico and Latin America.
Watson expects the focus on Mexico to intensify. One possible scenario, he said, was for companies to make components in China and assemble them in Mexico.
Starting in 2019, the United States began to focus on goods entering the country through the "minimum declaration principle." At that time, the US Consumer Product Safety Commission issued a report saying that due to the large number of cheap goods packaging, it has made it difficult to intercept unsafe imports.
According to U.S. Customs data, in 2022 alone, 685.5 million shipments entered the country through the "minimum declaration principle," compared to 410.5 million in 2018, a significant increase in volume.
According to an industry report, Pinduoduo's cross-border e-commerce platforms Temu and SHEIN ship nearly 600,000 packages a day to the United States under "minimum terms," a total of about 210 million a year, without paying any import taxes.
"This means that duty-free shipments from Temu and SHEIN alone could account for more than 30 percent of global shipments entering the United States below the 'minimum.'"
The report further said that more than 60 percent of the "minimal" or less goods entering the United States in 2021 came from China, with Temu and SHEIN likely to account for nearly half of that.
According to the report, SHEIN and Pinduoduo's cross-border e-commerce platform Temu are large beneficiaries of the current $800 exemption limit, and the income of many Chinese enterprises will be affected if cancelled.
It is unclear how much support the proposal will receive. Such a bill was proposed as early as 2022, but ultimately failed to pass Congress. If approved, the proposal would increase the cost of living for American consumers buying imported goods.
In addition, if the $800 exemption is actually removed, the new amount is still open to debate. If the previous $200 quota is restored, cross-border e-commerce companies will be affected, but it is relatively manageable.
At present, most of the small packages of direct mail goods sent from China to the United States, such as clothing, toys, 3C digital products, the value of a single package is mostly less than $800.
If the proposal is approved, it may have an impact on the cost and trade form of cross-border small packets between China and the United States, and it will also raise the industry threshold and promote the development of leading companies under the logic of supply-side improvement. Inventory management, pricing mechanisms, supply chain management, and multi-platform layout will become more critical.
