The $800 de minimis limit gives Temu and Shein a huge tax advantage over US-based ecommerce sellers.

If you are unfamiliar with de minimis, here is what it means.

When you import goods into the US, you can do it tax-free if the value is under $800.

Temu/Shein benefit from this rule. Since they are shipping directly to you from the manufacturer in China.

They don’t pay taxes on your orders below $800.

Shein paid $0 in tariffs in 2022, while H&M paid $205 million, and The Gap paid $700 million. WSJ estimates that de minimis resulted in $67 billion less taxes. 1

The Background on De Minimis

The de minimis rule was originally created to balance the need for customs controls with the practicality of international travel and trade.

All countries have this concept. But the US threshold of $800 is one of the highest in the world. Canada’s threshold is $150.

The US threshold went up from $200 to $800 in 2016.

Today, 30% of the small parcels in to the US originate from Temu, Shein.2

Not Just for the Big International Players

It’s not just Temu/Shein, but US-based ecommerce sellers can use this tax loophole too.

Aaron Rubin has a great post that explains this in detail. If you manufacture in China, then ship it in bulk to a warehouse in Mexico, and transport it in bulk across the border into the US, you can avoid import duties.

Watch Aaron Rubin’s 3-minute video, it’s really good.

US-based 3PLs use international warehouses for this benefit.

The Negative Side Effect

As expected, this rule is hurting US manufacturers, particularly in clothing. China already had an advantage on labor costs, and this tax advantage adds to it.

You’ll see the same pattern in other areas unrelated to de minimis too.

Chinese car maker BYD (largest competitor to Tesla) is building factories in Mexico to take advantage of the Mexico-US-Canada trade agreement. They can reduce their duties from 27.5% to 2.5% through this strategy.3

The Ongoing Debate

Domestic manufacturers and labor groups argue that these tax loopholes undermine local businesses and jobs.

Temu/Shein spend tons of lobbying dollars to keep these rules intact.

David Billstrom has a great post about this.

A bipartisan bill called the “Import Security and Fairness Act” co-sponsored by four Democrats and four Republicans is on the table to tackle this.

But that probably won’t get any traction in this election year.

  1. Elizabeth Brotherton-Bunch, What is “De Minimis” and Why Does It Need Reform? ↩︎
  2. Andrew R. Chow, The Tax Loophole That Helps Temu and Shein Keep Prices So Low
  3. River Davis, To Avoid Hefty Tariffs, China’s BYD Eyes U.S. Car Market Via Mexico ↩︎

About the Author

Jagath Narayan is the CEO and co-founder of Ordoro, the #1 ecommerce platform for retailers growing from 10 to 10,000 orders/day. Follow him on LinkedIn to learn more about entrepreneurship and ecommerce.