Gen Z clothing retailers Shein and Temu take advantage of a lawful U.S. tariff loophole for their profit.
Billions worth of Chinese goods bypass American import taxes due to an under-scrutinized exemption, a situation many critics argue requires updated regulations.
Popular among Gen Z shoppers, fast-fashion brands Shein and its main rival Temu, have experienced rapid growth over the past five years by selling Chinese-made clothing and accessories at unbelievably low prices directly to Gen Z consumers.
This growth has brought focus to an often-ignored tariff loophole, which Chinese manufacturers have taken advantage of for years and is said to be on the radar of the new administration.
The surge in Chinese clothing imports during the pandemic has been astounding.
Shein's 2023 global sales of $32 billion surged from $3 billion in 2019, with estimates of up to $50 billion for 2023.
The US accounted for approximately a third of its sales, and Shein now dominates the US online fashion market, surpassing competitors like Amazon and Walmart.
Anticipating an upcoming IPO on the London stock exchange (after failing to create interest on Wall Street), Shein cites cheap labor, on-demand production, and direct-to-consumer sales as keys to its success.
What Shein fails to mention is the tariff loophole known as the "de minimis" exemption for shipments valued less than $800. This refers to the custom declaration cards given to passengers on US-bound international flights, where they're expected to list the value of items purchased abroad. If the total value is less than $800, the merchandise can enter the US duty-free.
Because Shein and Temu categorize each order as a separate shipment, and average order values typically fall below $800, shipments bound for the US can enter duty-free.
According to a recent Wall Street Journal report, Shein and Temu are responsible for roughly one-third of the more than one billion de minimis packages set to enter the US this year.
In contrast, US retailers importing large, container-sized lots have no choice but to pay existing tariffs.
Despite years of criticism, this loophole has gone unaddressed. The incoming administration may seek to eliminate it, but inspecting billions of packages daily would be a monumental task.
Shein faces other challenges as well, including concerns from Wall Street that led to a scrapped IPO.
Referred to as "the unstoppable face of throwaway fast fashion," Shein, an enterprise run by a Chinese billionaire with headquarters in Singapore, does not sell its products in China but sources its goods from over 6,000 Chinese factories.
The success of Shein and Temu, while remarkable, is simultaneously amazing and puzzling.
The majority of their fashion sales are to Gen Z consumers, a demographic consistently expressing concern for sustainability and action on climate change.
It would be intriguing to observe how US retailers could affect change with a Gen Z-focused marketing campaign. Equally so, we'll be curious to see Gen Z's reactions to potential price increases.
- The rapid growth of fast-fashion brands like Shein and Temu, popular among Gen Z shoppers, has been facilitated by the "de minimis" tariff loophole, allowing them to sell Chinese-made clothing at low prices with minimal customs bills.
- Critics argue that the under-scrutinized exemption, which enables brands like Shein and Temu to bypass import taxes for shipments valued less than $800, needs to be addressed, as it provides an advantage for fast fashion companies over traditional retailers.
- With Gen Z consumers expressing growing concerns about sustainability and climate change, it would be interesting to observe how conventional US retailers might adapt their marketing strategies to capture this demographic and address the potential negative impact of fast fashion on the environment.
