According to recent reports by Bloomberg, Temu’s sales in January 2024 increased by 805% compared to January 2023, showcasing its rapid growth overseas.
The quick rise of Temu in foreign markets is not only due to its efforts but also benefits from a tariff policy in the U.S. market known as the “de minimis provision.”
What’s “de minimis provision”?
“De minimis provision” means packages delivered directly to individual buyers through direct mail can be entered into the U.S. tax-free if their value is below $800.
The “800-dollar provision” was signed into law in February 2015, when then-President Obama signed the Trade Facilitation and Trade Enforcement Act, significantly increasing the de minimis provision limit from $200 to $800. The Obama administration intended to allow customs to focus its limited tax collection resources on bulk goods and to promote the rapid and healthy development of e-commerce.
Amazon was the most prominent advocate behind this policy. In a context where Amazon dominated the U.S. e-commerce market, promoting the development of e-commerce was equivalent to promoting Amazon’s growth. The increase in the de minimis threshold allowed Amazon’s third-party goods to gain a low-price advantage quickly. Lower prices attracted more consumers, bringing more sellers to Amazon.
What Has The Provision Brought to Chinese Enterprises?
U.S. Customs data indicates that in 2023, up to 1 billion packages entered the United States through the “de minimis provision,” double the amount before the pandemic in 2019. Among these, one-third of the packages originated from Temu and SHEIN.
During the COVID-19 pandemic 2020, the independent women’s clothing site SHEIN rapidly increased its volume through the “small orders, quick returns” model, with its Gross Merchandise Value (GMV) surpassing the $10 billion mark for the first time. In 2022, Temu became instantly popular in the United States by leveraging its cost-performance advantage.
Both platforms adopt the small package direct mail approach, focusing on categories like clothing and small items, with typically low average order values. SHEIN’s average order value is around $80, while Temu’s average order value does not exceed $50, both well below the $800 taxation threshold. Despite shipping times often exceeding a week, the allure of $3 dresses and $8 Bluetooth headphones has captivated American consumers.
By December 2023, Temu’s unique visitors had reached 467 million, ranking second globally after Amazon. A Forbes report mentioned a postal worker in a rural area of Pennsylvania who had yet to hear of Temu months before now delivers at least 20 Temu packages daily.
Will the cancellation of the provision lead to a crisis?
Under the protection of this provision, the already prominent cost-effectiveness of Temu and SHEIN became even more evident, but it also led to issues.
Bipartisan lawmakers from the Senate and the House of Representatives introduced bills planning to end the tax-exempt status for small packages from China. If these bills are passed in Congress, they could impact several large Chinese e-commerce companies, including SHEIN and Temu.
However, While the “800-dollar provision” has indeed contributed to the growth of Chinese cross-border e-commerce, it has never been the core driving force. As Temu and SHEIN have grown rapidly, the significance of this provision has become increasingly limited.
Regarding cost control, Chinese e-commerce companies still have considerable flexibility.
With a 12.5% tariff on clothing, Temu still holds a price advantage of nearly 60% compared to Amazon after taxation, which is enough to attract consumers. Under a full management model, the platform directly connects with many factory sellers, cutting out intermediary steps to reduce supply chain costs, thus lowering prices.SHEIN also connects with numerous garment factories and delves into the material supply chain.
Furthermore, Temu has also seen rapid growth in the European market. A survey by the market research platform Appinio showed that by the second half of 2023, a quarter of Germans had become Temu users.
Therefore, compared to the competitive landscape on the business level, the “800-dollar provision” is not a critical life-or-death threshold. Its restrictive effect is diminishing and may become merely a chip for speculation.