Shein and Temu have quickly become go-to sites for Americans in search of a cheap water bottle or dress.
But the era of quick growth of these e-commerce sites might be stifled if Washington closes a tax loophole that could bump up the sites’ prices.
The Biden administration recently announced a new rule that could increase the costs of both companies to ship goods to Americans, which came after a House of Representatives Select Committee report that detailed just how much both companies benefited from that tax loophole.
While no rule has been enacted yet, already-pressed consumers should use these developments to reevaluate how they shop.
What is Shein and Temu?
Both companies are relatively new outfits for Americans owned by Chinese companies, though headquartered elsewhere, that connect sellers and buyers directly.
Shein, the fast fashion marketplace, has become a hit with Gen Z shoppers thanks to its low prices and trendy selections.
It uses a streamlined supply chain and big data to determine what consumers are looking for in, say, a dress and then quickly manufacture it and send it halfway across the world.
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E-commerce site Temu is even newer than Shein, launching in 2022, and made a splash with its “shop like a billionaire” spot during the Super Bowl. That ad is part of Temu’s strategy of cheap prices and tons of marketing (especially digital ads) to make itself known to cost-conscious consumers.
Both give users free goodies if they get people in their social network to use the site.
The bit seems to be working: Temu and Shein are some one of the most popular retailer sites (and apps) in the world.
Both, however, have been able to take advantage of a little known tax loophole in the U.S. that was created in 2016 to grow their businesses.
Higher Prices Coming?
Part of their success can be traced back to Section 231 of the Tariff Act of 1930, which allowed individuals and companies to send packages below a certain limit into the United States without facing customs or duties.
A 2016 trade bill raised the de minimis limit from $200 to $800, resulting in the number of packages entering into the U.S. to skyrocket.
The House report estimates that Shein and Temu accounted for 30% of all packages sent under the de minimis rule in 2022 alone.
This has given both companies a huge advantage over other retailers, such as Gap, who have to pay duties on their imports. For instance, Gap paid $700 million and H&M coughed up $205 million in import duties in 2022, per the House report, while Shein and Temu paid nothing.
It has also stymied efforts by the U.S. government to ensure that suppliers using these platforms aren’t profiting off of Uyghur slave labor, or shipping ingredients that can make fentanyl.
But it’s unclear how a reduced de minimis rule will affect Shein and Temu consumers in the U.S.
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Shein’s executive vice president Donald Tang authored a letter in 2023 to an industry group advocating for “a complete makeover” of the exemption rule.
Temu’s parent company Pinduoduo (or PDD), meanwhile, is already under pressure to increase sales and could ultimately change the shipping model it uses to evade the de minimis concern and keep competitive on price, says Morningstar senior equities analyst Chelsey Tam.
How To Shop Smart
We’re still months, if not years, away from the government making any kind of change to the de minimis exemption, and both e-commerce sites won’t stay idle as the regulatory environment changes.
Instead, consumers should take the news development as a chance to determine whether or not shopping on these sites is good for their overall financial health.
Tighten The Spending Drip
Americans are very anxious about the economy, with 70% believing it’s getting worse. Part of the problem is that many Americans, especially those who are lower and middle income, are having problems making ends meet.
Almost 35% of those making less than $40,000 a year cannot pay some or any bills right now, according to the Philadelphia Fed, and another 18% of those making less than $70,000 can’t. Nearly 11% of credit card balances are more than 90 days delinquent.
Sites like Shein and Temu can add to money management issues. It’s easy to justify an $11 plaid sleeveless coat as a harmless indulgence. But if those indulgences add up to put pressure on your monthly budget, consider deleting the apps from your phones until you’ve regained some balance.
Don’t Play The Game
Both sites do everything they can to get you to buy something now. On Shein, there’s a section called “Flash Sale” which shows items that are half off, and you’re told how many orders each item has and if it sold out recently. Similarly, seemingly everything on Temu is “almost sold out.”
Source: Temu
These are all not-so-subtle nudges to get you to hurry up your buying decision.
Go to each site with the intention to only buy the things you need, and recognize that both companies are playing on your sensibilities to lure you into ordering more than you originally intended. Anything that is sold out today, will almost certainly be readily available very soon.
Do You Really Need It?
A recent query on Shein showed that a $20 tumbler would take up to 10 days to be delivered. At a certain point you need to ask yourself, “How much do I really need this thing if I can live without it for 10 days?”
Some items, such as a child’s birthday present, may pass that test. There’s no need to have it sooner than the birthday party.
But if you’re fine living your life without a $20 tumbler for another 10 days, chances are you don’t actually need the tumbler and just kinda, sorta want it.
Those are the types of purchases you should purge.
Social Concerns
It’s worth remembering that these companies come with serious ethical dilemmas that consumers should keep in mind.
Consider whether it’s worth the environmental impact of having a cheap dress or water bottle shipped from the other side of the world to save a few bucks. While there’s no perfect solution to avoid pollution in a global economy, you can be judicious.
And then there’s the issue of the Uyghyrs, the Muslim minorities that China has been accused of enslaving and keeping in reeducation camps.
The House report claims that “Temu conducts no audits and reports no compliance system to affirmatively examine and ensure compliance with the [Uyghur Forced Labor Prevention Act ].” Its only countermeasure to ensure that slave labor isn’t used, per the report, is to have suppliers agree to boilerplate terms and conditions.
More recently, Senator Marco Rubio (R-FL) called on the Department of Homeland Security to investigate whether both Temu and Shein are running afoul of the law and profiting off of slave labor.
Given those concerns, ask yourself whether either company deserves your business.
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