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Economy

Biden's Trade Policy Shift: A Potential Price Hike for Shein and Temu

Saturday 14 September 2024 - 10:13

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The popular e-tailers Shein and Temu, known for their incredibly low prices, may soon face a significant shift in their pricing strategy as the Biden administration takes aim at a trade law loophole that has benefited these Chinese-linked retailers. This move could result in a substantial increase in prices for consumers, potentially impacting the competitive landscape of the fashion retail industry.

The so-called de minimis provision, which allows packages valued under $800 to enter the United States duty-free and with reduced scrutiny, has been a key factor in the success of Shein and Temu. A spokesperson for the Republican majority on the House Select Committee on the Chinese Communist Party estimates that prices could rise by at least 20% if this provision is changed. Retail analyst Neil Saunders agrees that prices are likely to increase, although the exact amount remains uncertain.

The Biden administration's announcement on Friday morning outlined plans to bar overseas shipments subject to U.S.-China tariffs from benefiting from the de minimis exemption. This obscure tariff law loophole, dating back to the 1930s, has enabled these retailers to offer ultra-affordable prices, often as low as $5 for T-shirts and $10 for sweaters.

Both Shein and Temu have declined to comment on whether they will raise prices in response to the proposed changes. They maintain that their low prices are not solely driven by the de minimis exemption but rather their unique business models. However, the potential impact on their competitive edge is significant, especially considering the substantial market share they have gained from rivals such as H&M, Zara, Target, Walmart, and Amazon.

If Shein's prices were to increase by 20%, it would bring their assortment closer to the pricing of these established competitors. For instance, the average price of a dress on Shein as of June 1 was $28.51, significantly lower than the average costs at H&M ($40.97) and Zara ($79.69). A 20% price increase would make Shein's average dress price $34.21, narrowing the gap with H&M and potentially impacting their ability to compete on price alone.

The scrutiny on Shein and Temu extends beyond pricing concerns. The House Select Committee on the CCP has been investigating the companies for slave labor practices in their supply chains and their use of the de minimis exemption. A spokesperson for the committee emphasized the need for urgent action, stating, "The majority of products from Shein and Temu fall under the de minimis exception, allowing them to evade U.S. Customs scrutiny. Congress must make de minimis reform law."

As the pressure mounts on these digital darlings, Shein's plans for a U.S. public offering have diminished, and they have turned their attention to London in search of a more favorable reception. The proposed changes to the de minimis provision could further impact Shein's IPO plans, adding another layer of complexity to their business strategy.

While the reform of the de minimis rules aims to create a fairer playing field, it is likely to result in higher costs for consumers. As retail analyst Neil Saunders notes, "Ultimately, while reforming the de minimis rules makes for a fairer and more level playing field, like any tariff, it will end up costing consumers more."

This article is intended for general readers interested in economic reforms and the impact of trade policies on consumer prices. It provides an analytical and professional perspective on the potential consequences of the Biden administration's trade policy shift, offering insight into the complex dynamics of the fashion retail industry.