Shein's Low Prices Under Threat: US Trade Law Change Could Hike Costs

The ultra-low prices that have made Chinese-linked e-tailers Shein and Temu a hit with American consumers could soon rise if the Biden administration curbs their use of a trade law loophole.

• The "de minimis" provision, allowing packages worth less than $800 to enter the US without import duties, has been a key factor in Shein's and Temu's affordability.
• If this exemption is removed, prices for Shein products could jump by at least 20%, according to the House Select Committee on the Chinese Communist Party.

The De Minimis Exemption: A Lifeline for Shein

The de minimis exemption has been a crucial part of Shein's business model, enabling it to keep its prices low and attract a vast customer base.

• Shein has been able to offer its products at significantly lower prices compared to traditional retailers, primarily due to the de minimis exemption.
• By avoiding import duties, Shein can keep its costs low, allowing it to offer trendy fashion at affordable rates.
• The exemption has also facilitated Shein's rapid growth and expansion in the US market.

Shein's Business Model Under Scrutiny

Lawmakers have been scrutinizing Shein's business model, particularly its reliance on the de minimis exemption, and its potential impact on the US economy and American retailers.

• The House Select Committee on the CCP launched investigations into Shein and Temu, focusing on their use of the de minimis exemption and its potential impact on American jobs and businesses.
• Concerns about potential unfair competition and the impact on US businesses have prompted lawmakers to push for changes to the de minimis exemption.
• The scrutiny has also raised questions about Shein's labor practices and supply chain transparency.

Shein's IPO Hopes Dwindle

Shein's plans for a US public offering have been hit by the scrutiny and potential changes to the de minimis exemption.

• The company has faced increased regulatory scrutiny and political opposition to its US IPO.
• The potential price hikes due to the de minimis exemption could further dampen investor interest in Shein's IPO.
• Shein's IPO hopes are now focused on London, seeking a more welcoming environment for its business model.

Potential Impact on Shein's Business Model

The removal of the de minimis exemption could significantly impact Shein's business model, potentially forcing the company to adjust its pricing strategy and operations.

• Shein may need to raise prices to offset the increased import duties, which could impact its competitive advantage in the fast fashion market.
• The company may also need to re-evaluate its supply chain and sourcing strategies to mitigate the impact of higher costs.
• The potential price increases could lead to a decline in sales and market share, as consumers shift to alternative retailers.

Shein's Response to the Scrutiny

Shein has disputed claims that its low prices are solely driven by the de minimis exemption and has stated that it is committed to ethical labor practices and transparency in its supply chain.

• Shein has acknowledged issues related to cotton from banned regions in its supply chain and has stated that it is working to rectify these problems.
• The company has also expressed support for de minimis reform and has participated in a pilot program with US Customs and Border Protection to improve data transparency.

Implications of the Proposed Changes

The proposed changes to the de minimis exemption are likely to have a significant impact on the fast fashion industry, particularly for companies like Shein that heavily rely on low-cost imports.

• The changes could lead to a more level playing field for American retailers, as they would face less competition from low-priced imports.
• However, consumers may end up paying higher prices for fast fashion products, as import duties are passed on to them.
• The changes could also impact the growth of fast fashion companies, as they face higher costs and potential regulatory challenges.