How Trump's tariffs on China delivered a 'double-whammy' to Temu and Shein

With Donald Trump back in the White House, it was only a matter of time, not a question of if, before new tariff policies would be rolled out. Less than two weeks into his second term, he has taken a step that flies in the face of his Reagan-esque campaign slogan, "Are you better off now than you were four years ago?"

While tariffs on Canada and Mexico have been given a 30-day reprieve, China hasn't been so lucky, with all Chinese products imported into the U.S. now subject to a new 10% tariff. Simultaneously, the U.S. is also cracking down on a little-known tax loophole that has allowed millions of packages a week to enter the U.S. from cheap e-commerce retailers like Shein and Temu.

The cost-of-living crisis accelerated the presence of these two companies in the U.S., and ironically, Trump's first presidential term helped them gain a solid foothold in America. But now, the double whammy of new tariffs and a tax loophole suspension will come at a higher cost for the average American.

Since 2015, Americans have been able to buy goods from overseas without paying import taxes—so long as the package is worth less than $800 (AU$1275). It's similar to a tax-free threshold, but with a more complicated name: the de minimis exemption.

Even before Trump took office, the loophole had come under public scrutiny, with the Biden administration announcing last September that it was considering action on the large number of de minimis shipments flooding into the country. At the time, the Biden administration said the actions were to address the "significant increase in abuse of the de minimis exemption," with a focus on Chinese-founded e-commerce platforms like Shein and Temu.

Data released last November by U.S. Customs and Border Protection revealed just how big of a problem de minimis shipments had become in the U.S. In 2024, the agency estimated it was processing more than 4 million de minimis shipments into the U.S. each day—more than double the amount it processed in 2021—with Shein and Temu accounting for more than 30% of the total packages. The sheer volume of packages flooding into the U.S. made it impossible for customs officials to inspect goods and "intercept unsafe and illicit goods."

Trump's first presidential term laid the groundwork for this ballooning, after he imposed a range of tariffs on Chinese goods in 2018. China responded by removing the export tax Chinese companies had to pay to the government when sending goods overseas. In effect, Chinese companies no longer had to pay a 13% tax on every package they sent overseas.

Coupled with the de minimis exemption, this meant Chinese businesses were in a better position when shipping products to the U.S.—and cheap online retailers like Shein and Temu took advantage during the subsequent COVID-19 pandemic and cost-of-living crisis.

Even before returning to the White House, Trump said that tariffs on China were to stop illegal substances from flowing into the U.S.—particularly the synthetic opioid fentanyl. U.S. Customs officials have also said the number of de minimis packages makes it "virtually impossible" for them to detect illicit substances.

While targeting the de minimis loophole wasn't an explicit agenda during Trump's presidential campaign or after his win, analysts say it's a natural progression of his broader agenda. "There's some evidence that people are using the loophole to import fentanyl ingredients into the U.S., which is certainly one reason," said Harry Murphy Cruise, China and Australia economic lead at Moody's Analytics.

"The second reason is what it means for U.S. retailers. They often buy from the same factories as Temu, but they buy in bulk. When it comes to the U.S., they are paying those [import] duties, so they are less competitive."

Trump's Secretary of State Marco Rubio is also a long-term critic of China and its alleged use of forced labor. As a senator, Rubio was a key sponsor of the Uyghur Forced Labor Prevention Act, which bans goods from being imported into the U.S. from the Xinjiang region of China due to human rights abuses against the minority group. (China has repeatedly denied the allegations.) Rubio has previously criticized Shein and Temu over alleged use of slave labor in their supply chains.

The day after the new tariffs came into effect, Semafor reported that the Trump administration was considering adding Shein and Temu to the U.S. Department of Homeland Security's forced labor list. If this were to happen, Shein and Temu would be banned from selling goods made in the Xinjiang region into the U.S. Shein has frequently said it has zero tolerance for forced labor, while Temu has frequently denied its association with the practice.

"I think the motivation for [Trump] suspending de minimis is probably more around the fentanyl and domestic competition arguments, but I certainly think there are still plenty of questions around forced labor, which Rubio has clearly pointed out," said Murphy Cruise. Murphy Cruise noted that Trump's decision to apply a blanket 10% tariff on all Chinese imports would be in addition to tariffs already in place on the country. "That would bring the overall effective tariff rate up to around 20%."

The new tariffs and the closure of the de minimis loophole will see Americans footing the bill when goods ordered from sites like Shein and Temu arrive in the U.S. For example, ordering $100 worth of goods from Temu would incur $20 in import duties—which past research has shown will disproportionately affect low-income households, as they increasingly rely on cheap retailers.

International shipping data analyzed by economists Pablo Fajgelbaum and Amit Khandelwal shows a correlation between de minimis packages arriving in the U.S. from China and household income. Their research, published last October, concluded that eliminating the de minimis threshold would "disproportionately harm low-income and minority consumers" and reduce overall welfare by as much as $13 billion.

"73% of direct shipments imported by the poorest zip codes are de minimis, compared to 52% for the richest zip codes. The share of de minimis shipments from China also declines with income: 48% for the poorest zip codes compared to 22% for the richest. If [the de minimis exemption] is eliminated, the tariff schedule would shift from being pro-poor to being pro-rich," they wrote.

The pair also examined credit card transaction data and found that low-income households shop at Shein and Temu at a higher rate than wealthier households, with their business models taking advantage of the de minimis exemption. Shein and Temu have each denied their business relies on de minimis. When contacted by ABC, a Temu representative declined to comment on the changes to the de minimis threshold, as well as the impact of the U.S. imposing tariffs on China. Shein did not respond by the time of publication.

Dean Baker, a senior economist at the Center for Economic and Policy Research in Washington D.C., explained that the double whammy of eliminating the de minimis exemption and the extra 10% tariff could also exacerbate inflation in the U.S. "Obviously, inflation is a major issue in our elections. The inflation rate has come down. It's pretty much back to the Fed's target, but nonetheless, it's still an issue. That's undeniable."

"But there's no question if you have a lot of tariffs, that's going to raise inflation. If you put big tariffs on a large share of imports, that's going to raise prices. That means higher inflation." Murphy Cruise said this would effectively hit low-income households in the U.S. the hardest. "When inflation goes up, it mainly hurts the lower socioeconomic groups. They spend a proportionally larger share of their income on the necessities they need."

"So when the prices of those things go up, it hurts them far more than it hurts higher income earners. This exacerbates that. When they're looking for cheaper goods overseas, when those goods are now more expensive, that's another hit to their income."

The United States Postal Service (USPS) announced on Tuesday that it would no longer accept packages from China and Hong Kong, but reversed the decision a day later. USPS did not reveal the reasons behind the short-lived ban but reiterated its commitment to helping U.S. Customs and Border Protection collect import duties to avoid delivery delays.

For Baker, Trump's tariff goals and his campaign messaging form an unusual juxtaposition with their actual impact. "It's a tax on imported goods, and overwhelmingly, it's paid by the American people, and I really don't think that most of the people who think his tariffs are a good idea understand that," he said.

"He says we're going to get rich by putting up big tariffs. But if you understand what a tariff is, you understand it's a tax on imported goods. I think a lot of the people who voted for him and [think] tariffs are a good idea, they really don't understand what he's talking about. If he ... puts up big tariffs, they're going to see it, they're going to pay more. I don't think you can tell people they're not paying more when they are paying more. Then I think he's going to have a problem."

Juozas Kaziukenas, the founder of e-commerce intelligence company Marketplace Pulse, explained that Temu and Shein are likely to avoid the worst impacts of Trump's latest round of tariffs and de minimis changes, at least in the short term. "I don't think they were ready for Trump, because a lot of their stuff does come from China ... but they have been very aggressively trying to reduce the reliance on de minimis."

"Now, it's often coming from local warehouses, which also has the added benefit of faster delivery times. It's still Chinese sellers, but that inventory is now located in the U.S., so it has already paid import duties. So when the de minimis threshold goes away, it's going to have a smaller impact, because not 100% of everything sold on those apps is coming directly from China anymore."

Another part of Temu's strategy, in particular, is that it is moving away from the ultra-low prices it once boasted to entice customers to "shop like a billionaire." "One person at Temu I talked to told me they're moving from cheap to affordable, and I think that explains what they're doing pretty well," said Kaziukenas.

"They're still cheaper than alternatives, but they're not five times cheaper than alternatives." Likewise, he said the U.S. government's crackdown on de minimis may be too late, with the retailers already establishing themselves in the minds of U.S. shoppers for years. "They've benefited from it as much as they could, especially during this period of their growth, and then in the future, they want to be less reliant on it," said Kaziukenas. "So when the loophole closes, they're not 100% dependent on it anymore."

Kaziukenas said Trump's tariff and de minimis decisions will also theoretically impact Amazon in the U.S. "Half of its sellers are from China, and it's almost hidden in plain sight," he said. "When most people shop on Amazon, they don't really think they're shopping on a marketplace. They also don't really think that that marketplace is really just a bunch of sellers in China."

"It's impacted by ... tariffs on China, just like any other retailer, and any increase in tariffs will lead to price increases on Amazon. This is one of the topics that [Amazon founder] Jeff Bezos is definitely thinking about, how do they manage the U.S. and China relationship? Because any change to it will have a huge impact on Amazon's prices."

It's unclear just how much Amazon's business model relies on sellers from China, but filings with the U.S. Securities and Exchange Commission reveal they make a significant contribution to third-party revenue, and any regulatory or trade restrictions "could adversely affect our results of operations."

Economist Dean Baker said it's also possible Amazon could get an exemption from Trump to avoid the tariffs altogether. "He's already announced that he's going to exempt Apple and their iPhones from tariffs because the head of Apple made a huge contribution to his inaugural committee," he said.

"So he might look at Jeff Bezos, the founder of Amazon, who made a huge contribution to his inaugural committee ... and [Trump] might give them special status as well. That would further disadvantage Temu or any Chinese company because they're at a disadvantage, so maybe Amazon can import their stuff from China at half price. I don't know what he's going to do, but the point is he has no qualms about treating different companies selectively." Amazon did not respond to ABC's request for comment.