In a move that could have significant implications for the popular Chinese-linked e-tailers Shein and Temu, the Biden administration is aiming to close the "de minimis loophole" that currently allows packages valued under $800 to enter the United States without import duties and scrutiny at the border. If successful, this policy change could lead to a substantial increase in prices on both platforms.

According to a spokesperson for the Republican majority of the House Select Committee on the Chinese Communist Party, Shein and Temu could see prices rise by at least 20% if the de minimis provision is altered. The committee estimated this figure after conducting investigations into the companies over a year ago. Retail analyst Neil Saunders from GlobalData concurred, stating that the removal of the de minimis exemption would likely result in higher prices for products from Shein and Temu.

With Shein being estimated to generate over $30 billion in annual revenue, while Temu's parent company, PDD Holdings, saw a 90% increase in revenue in fiscal 2023 amounting to $34.9 billion, the two companies have quickly gained popularity among American consumers with their ultra-low prices and ability to swiftly produce trending styles.

Currently, Shein's assortment boasts prices as low as $5 for T-shirts and $10 for sweaters, making it an attractive choice for budget-conscious shoppers. However, if the proposed trade law changes come into effect, the 20% price hike would bring Shein's assortment more in line with competitors like H&M and Zara, potentially hindering its ability to compete in the market.

It is important to note that Shein and Temu have strongly emphasized that their low prices are not solely dependent on the de minimis exemption but rather, a result of their innovative business models. Both companies declined to comment on whether they would raise prices due to the proposed changes. Shein stated that it supports de minimis reform and has recently participated in a voluntary pilot program with U.S. Customs and Border Protection, providing additional data about its packages and shipments.

The announcement from the Biden administration to bar overseas shipments subject to U.S.-China tariffs from the de minimis exemption comes after a thorough investigation by lawmakers into Shein and Temu. The companies have faced scrutiny for alleged slave labor in their supply chains, as well as their use of the de minimis loophole. Last year, the House Select Committee on the CCP reported that neither Shein nor Temu paid import duties in 2022. Shein has disputed this claim, stating that it has paid millions of import duties, while also acknowledging the presence of cotton from banned regions in its supply chain and pledging to address the issue.

While the proposed changes to the de minimis rules aim to level the playing field and curb the influence of Chinese-linked retailers in the U.S. market, retail analysts warn that ultimately, consumers may face higher costs as a result. Alongside longer shipping times and reduced discounts relative to competitors, some shoppers may opt for retailers closer to home.

As Shein's hopes for a U.S. public offering diminish, the company has turned to London and confidentially filed for a public listing there, seeking a more favorable environment amid the backlash it faced in the United States. It remains to be seen how the proposed de minimis changes will impact Shein's IPO plans.

Overall, the potential closure of the de minimis loophole poses a significant challenge for Shein and Temu, as it could lead to a considerable increase in prices that may disrupt their current business models and market share.