"Biden's Tariff Crackdown Upsets Amazon and Walmart's China Plans"
American retail giants, Amazon and Walmart, have been developing a strategy to avoid tariffs and reduce costs. This strategy is in response to competition from Chinese retail giants like Shein and Temu. However, a recent move by the Biden administration could disrupt their plans.
For some time, these U.S. retailers have been planning to revamp their business models. Their aim is to ship more goods directly from Chinese factories to consumers. This strategy would eliminate the need for expensive U.S. warehouses and stores. It also takes advantage of a little-known loophole in a century-old trade law that allows them to avoid high tariffs.
This loophole, called "de minimis," allows importers to avoid U.S. taxes and tariffs on shipments valued under $800. As a result, Chinese platforms like Shein and Temu have been able to flood the market with inexpensive products. This has left American companies scrambling to keep up.
However, the Biden administration has recently announced plans to clamp down on many Chinese imports that exploit the de minimis rule, particularly clothing items. This move is intended to curb the influx of duty-free packages entering the country, predominantly from China.
Although these changes won't take effect immediately, the message is clear: The free ride is coming to an end, according to the NY Times.
Amazon had been planning to launch a discount service that would capitalize on direct-to-consumer shipments from China. Walmart, feeling the pressure to stay competitive, was also considering similar tactics.
Steve Story, executive vice president for customs and international trade at Apex Logistics International, stated, "It's get on board or get left behind. If you don't get online and embrace this, you're going to be overshadowed by Shein, Temu, and Alibaba."
Story admitted that he has helped Chinese sellers avoid tariffs by shipping through Amazon's fulfillment centers. This was made possible by a 2020 customs ruling that allowed Chinese firms to act as "non-resident importers." Essentially, they can send products tariff-free to themselves via Amazon warehouses scattered across the U.S.
Traditionally, retailers would ship containers loaded with goods from China to U.S. ports. From there, they would be transported to warehouses and stores before reaching consumers. Now, many are bypassing this route, opting to package and ship items directly from China under the de minimis rule. This method not only avoids tariffs but also eliminates the need for extensive warehousing.
The number of packages entering the U.S. under the de minimis rule has skyrocketed to over one billion in 2023, up from a mere 140 million a decade ago. China is the main contributor, sending more packages than all other countries combined.
American businesses are upset, arguing that the rules create an uneven playing field. Brands with U.S. stores and warehouses are subject to more tariffs compared to those shipping directly to consumers.
Peter Bragdon, general counsel at Columbia Sportswear, expressed his frustration, stating, "De minimis is like a big tax incentive the U.S. is giving you to take the job somewhere else. It changes the math."
Mike Hesse, CEO of Nebraska-based Blue Ox, which manufactures tow bars for RVs, discovered Chinese knockoffs of his products being sold on Amazon and slipping into the country via de minimis.
Some companies have accused Chinese firms of dishonest practices, such as falsifying invoices to sneak pricier items under the $800 threshold or faking shipping documents to send bulk goods duty-free.
Meanwhile, some retailers have relocated warehouses to Canada or Mexico. From there, they can quickly and legally ship items duty-free into the U.S. when orders roll in - taking more American jobs with them.
As the Biden administration tightens the rules on de minimis shipments from China, there are concerns that imports from neighboring countries might increase as companies look for new loopholes.
Even Chinese giants are preparing for the impact. Shein says it's open to reforming the tariff exemption and will adapt to keep customers happy. Temu has started highlighting products from "local warehouses," a move seen as hedging against regulatory changes.
Juozas Kaziukenas, founder of e-commerce intelligence firm Marketplace Pulse, noted, "This is clearly a strategic move to limit exposure to any regulatory shifts."
Lawmakers on both sides of the aisle have proposed narrowing the de minimis exemption. However, it's uncertain whether they'll rally behind a unified plan.
Donald Tang, executive chairman of Shein, expressed his desire for certainty so that businesses can plan accordingly. He stated this just a day before the administration's surprise announcement.
For Amazon, Walmart, and countless others, the race is on to adapt—or risk being left behind.
Bottom Line
The Biden administration's crackdown on tariff loopholes is a significant move that could drastically alter the business strategies of major retailers like Amazon and Walmart. The de minimis rule has been a contentious issue, with some businesses arguing it creates an uneven playing field. As the administration tightens the rules, it will be interesting to see how these companies adapt. What are your thoughts on this development? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is every day at 6 pm.
"Biden's Tariff Crackdown Upsets Amazon and Walmart's China Plans"
American retail giants, Amazon and Walmart, have been developing a strategy to avoid tariffs and reduce costs. This strategy is in response to competition from Chinese retail giants like Shein and Temu. However, a recent move by the Biden administration could disrupt their plans.
For some time, these U.S. retailers have been planning to revamp their business models. Their aim is to ship more goods directly from Chinese factories to consumers. This strategy would eliminate the need for expensive U.S. warehouses and stores. It also takes advantage of a little-known loophole in a century-old trade law that allows them to avoid high tariffs.
This loophole, called "de minimis," allows importers to avoid U.S. taxes and tariffs on shipments valued under $800. As a result, Chinese platforms like Shein and Temu have been able to flood the market with inexpensive products. This has left American companies scrambling to keep up.
However, the Biden administration has recently announced plans to clamp down on many Chinese imports that exploit the de minimis rule, particularly clothing items. This move is intended to curb the influx of duty-free packages entering the country, predominantly from China.
Although these changes won't take effect immediately, the message is clear: The free ride is coming to an end, according to the NY Times.
Amazon had been planning to launch a discount service that would capitalize on direct-to-consumer shipments from China. Walmart, feeling the pressure to stay competitive, was also considering similar tactics.
Steve Story, executive vice president for customs and international trade at Apex Logistics International, stated, "It's get on board or get left behind. If you don't get online and embrace this, you're going to be overshadowed by Shein, Temu, and Alibaba."
Story admitted that he has helped Chinese sellers avoid tariffs by shipping through Amazon's fulfillment centers. This was made possible by a 2020 customs ruling that allowed Chinese firms to act as "non-resident importers." Essentially, they can send products tariff-free to themselves via Amazon warehouses scattered across the U.S.
Traditionally, retailers would ship containers loaded with goods from China to U.S. ports. From there, they would be transported to warehouses and stores before reaching consumers. Now, many are bypassing this route, opting to package and ship items directly from China under the de minimis rule. This method not only avoids tariffs but also eliminates the need for extensive warehousing.
The number of packages entering the U.S. under the de minimis rule has skyrocketed to over one billion in 2023, up from a mere 140 million a decade ago. China is the main contributor, sending more packages than all other countries combined.
American businesses are upset, arguing that the rules create an uneven playing field. Brands with U.S. stores and warehouses are subject to more tariffs compared to those shipping directly to consumers.
Peter Bragdon, general counsel at Columbia Sportswear, expressed his frustration, stating, "De minimis is like a big tax incentive the U.S. is giving you to take the job somewhere else. It changes the math."
Mike Hesse, CEO of Nebraska-based Blue Ox, which manufactures tow bars for RVs, discovered Chinese knockoffs of his products being sold on Amazon and slipping into the country via de minimis.
Some companies have accused Chinese firms of dishonest practices, such as falsifying invoices to sneak pricier items under the $800 threshold or faking shipping documents to send bulk goods duty-free.
Meanwhile, some retailers have relocated warehouses to Canada or Mexico. From there, they can quickly and legally ship items duty-free into the U.S. when orders roll in - taking more American jobs with them.
As the Biden administration tightens the rules on de minimis shipments from China, there are concerns that imports from neighboring countries might increase as companies look for new loopholes.
Even Chinese giants are preparing for the impact. Shein says it's open to reforming the tariff exemption and will adapt to keep customers happy. Temu has started highlighting products from "local warehouses," a move seen as hedging against regulatory changes.
Juozas Kaziukenas, founder of e-commerce intelligence firm Marketplace Pulse, noted, "This is clearly a strategic move to limit exposure to any regulatory shifts."
Lawmakers on both sides of the aisle have proposed narrowing the de minimis exemption. However, it's uncertain whether they'll rally behind a unified plan.
Donald Tang, executive chairman of Shein, expressed his desire for certainty so that businesses can plan accordingly. He stated this just a day before the administration's surprise announcement.
For Amazon, Walmart, and countless others, the race is on to adapt—or risk being left behind.
Bottom Line
The Biden administration's crackdown on tariff loopholes is a significant move that could drastically alter the business strategies of major retailers like Amazon and Walmart. The de minimis rule has been a contentious issue, with some businesses arguing it creates an uneven playing field. As the administration tightens the rules, it will be interesting to see how these companies adapt. What are your thoughts on this development? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is every day at 6 pm.
