The Biden administration announced latest steps on Friday to curb the “overuse and abuse” of a long-standing trade law that permits low-value shipments to be imported into the United States without paying import duties and handling fees.

The measures include a brand new rule proposal that may exclude foreign shipments of products subject to US-Chinese tariffs from the special tariff exemption.

This trade rule, generally known as the “de minimis loophole,” allows packages valued at lower than $800 to enter the United States relatively unchecked. Over the past decade, the variety of “de minimis” shipments has exploded, from around 140 million to over a billion, the White House estimates.

“The dramatic increase in de minimis shipments has made it increasingly difficult to detect and block illegal or unsafe shipments to the United States,” Daleep Singh, deputy national security adviser for international economics, told reporters on a conference call Thursday previewing the measures.

Officials say the explosion in de minimis shipments is essentially because of a number of China-linked online retail giants resembling Shein and Temu, that are exploiting the exemption to ship hundreds of thousands of dollars price of clothing and cheap home goods from factories in China on to American customers.

Each individual package is usually price significantly lower than $800 and due to this fact qualifies for the de minimis exemption.

But latest restrictions on products subject to tariffs under Sections 301, 201 and 232 – like those proposed on Friday – could turn that business model on its head.

“Since about 70 percent of Chinese textile and apparel imports are subject to Section 301 tariffs, this move will dramatically reduce the number of shipments that will qualify for the de minimis exemption,” Singh said.

In addition to the proposed tariff rules, the White House also announced plans for a brand new rule that may “require specific, additional data for de minimis shipments – including the 10-digit tariff number and the person claiming the de minimis exemption,” in response to a fact sheet.

The Biden administration also called on Congress to pass laws to revise the unique de minimis rules.

An obscure customs loophole passed by Congress in 1930 – the so-called “de minimis” exemption – has again come under White House scrutiny in recent times after lawmakers expressed concern that the rule would allow foreign retailers to evade tariffs and border inspections of their packages.

Last 12 months, the House Select Committee on the Communist Party of China published a report on Shein and Temu and concluded that the 2 corporations “likely account for more than 30 percent of all packages shipped to the United States daily under the de minimis rule and probably nearly half of all de minimis shipments from China to the United States.”

Traditional retailers typically import containers of products and send them to U.S. warehouses for distribution. Shein and Temu, however, typically ship their products on to American consumers through their networks of Chinese suppliers.

By exploiting the de minimis loophole to avoid tariffs, Chinese retail giants have likely evaded tens of hundreds of thousands of dollars in import duties.

In 2022 alone gap paid $700 million in import duties, H&M paid $205 million and David's Bridal paid $19.5 million, in response to the House Special Committee on the Communist Party of China.

However, Shein and Temu didn’t pay any import duties in any respect, the committee said.

A Shein spokesman on Friday denied the committee's claim, saying the corporate paid “millions of dollars in import duties in both 2022 and 2023.”

The lawmakers claim that by avoiding the high import tariffs the U.S. imposes on most Chinese textiles, clothing and shoes, Shein and Temu are in a position to offer extremely low prices and outdo their import-paying competitors.

They also argued that the exemption would allow Shein and Temu to import products made using slave labor undetected since the packaging wouldn’t be checked and tested to the identical extent.

Shein argues that its inventory-reduced supply chain and overall business model allow it to supply such low prices and that its pricing structure has nothing to do with the de minimis exemption.

“SHEIN places the utmost importance on compliance with import regulations, including reporting requirements under U.S. law regarding de minimis imports,” an organization spokesperson told CNBC on Friday.

Last summer, Shein’s CEO Donald Tang said: called for reforms in de minimis and said the regulation have to be “completely revised to create a level playing field for all retailers.” However, he didn’t explain what these reforms would appear to be.

On Friday, the Shein spokesman said the corporate stands by Tang's comments.

“We look forward to working with everyone involved on the reform,” the spokesman said.

The company has acknowledged that cotton from banned regions was present in its supply chain and said it’s working to correct the issue.

When asked, a Temu spokesperson said the corporate's growth was “not dependent on the de minimis rule. We are reviewing the new rule proposals and remain committed to providing added value to consumers.”

Temu said in a press release that the corporate is “committed to ethical labor practices,” “prohibits any form of forced, child or penal labor, and requires compliance with all local labor laws.”

The rock-bottom prices which have made China-linked e-retailers Shein and Temu so popular with American consumers could soon rise if the Biden administration bans them from exploiting a loophole in trade law.

The corporations, known for his or her $5 T-shirts and $10 sweaters, could face a price increase of a minimum of 20 percent if the so-called de minimis rule is modified, a spokesman for the Republican majority on the House Select Committee on the Chinese Communist Party told CNBC. The committee got here to that estimate after launching investigations into Shein and Temu greater than a 12 months ago.

Neil Saunders, retail analyst and managing director of GlobalData, agreed that the policy change would likely result in a price increase, but couldn’t say by how much.

“If the de minimis exemption is removed, the cost of products on marketplaces like Shein and Temu will increase. They will still be low-cost marketplaces, but they won't be quite as competitive as they are now,” Saunders said in an email to CNBC. “This could cost them market share or slow their growth, but they will likely respond by pushing some higher-priced items to balance out their supply.”

On Friday morning, the Biden administration announced plans to exclude foreign shipments of products subject to U.S.-Chinese tariffs from the de minimis exemption.

This exemption is an obscure loophole in customs law that has been in place because the Thirties. It allows packages valued at lower than $800 to enter the United States without shippers having to pay import duties and under less stringent inspection than larger containers.

The announcement comes after the businesses were subjected to greater than a 12 months of in depth scrutiny by lawmakers from each parties, and specifically by the House Select Committee on the Chinese Communist Party (CCP).

Both Shein and Temu declined to inform CNBC whether they are going to raise their prices because of this of the proposed changes. The corporations also denied that their low prices were resulting from the de minimis exemption, saying their business models allowed them to supply their extremely low prices.

A Shein spokesperson noted that the corporate supports de minimis reform and was recently included in a voluntary pilot program run by U.S. Customs and Border Protection, under which it agreed to supply additional data on packages and shipments.

In recent years, the 2 corporations have taken U.S. consumers by storm with their ultra-low prices and skill to bring trendy styles to market much faster than the competition. Shein is estimated to generate greater than $30 billion in annual revenue, but how much Temu generates is unclear. The parent company, PDD investmentsgenerated revenue of $34.9 billion in fiscal 12 months 2023, a rise of 90% over the identical period last 12 months.

As the businesses have change into popular shopping destinations, they’ve taken market share from competitors that serve similar consumer segments, corresponding to H&M, Zara, Target, Walmart and Amazon.

If Shein were to extend its prices by 20%, the corporate's product range would change into more just like that of its competitors, which could make it tougher for the corporate to compete.

The average price of a dress at Shein was $28.51 on June 1, in keeping with data from Edited, a London-based research firm that analyzed the corporate's pricing strategy and compared metrics with Reuters.

At the time, that price was well below the common price of dresses at H&M and Zara, which were $40.97 and $79.69, respectively, in keeping with Edited data. However, if costs were to extend by 20%, the common dress price at Shein could be $34.21 – much closer to H&M's average price.

There isn’t any guarantee that prices would increase by 20% if the Biden administration's proposal goes into effect. Still, a smaller discount in comparison with Shein's competitors, coupled with the corporate's long shipping times, may lead some consumers to go for retailers closer to home.

“Although reform of the de minimis rules will lead to a fairer and more level playing field, like all tariffs it will ultimately result in higher costs for consumers,” Saunders said.

Last 12 months, the Committee began investigating Shein and Temu for slave labour of their supply chains, specializing in their use of the de minimis exemption. In a Report from June 2023 that each corporations had not paid import duties in 2022. Shein denied this claim, saying the corporate paid tens of millions of dollars in import duties in 2022 and 2023. However, the corporate has acknowledged that cotton from banned regions was present in its supply chain and said it was working to repair the issue. Temu didn’t reply to inquiries about slave labor in its supply chain.

“As the Special Committee's investigation into Shein and Temu found, the majority of Shein and Temu's products fall under the de minimis exemption. This allows them to bypass U.S. customs and evade the scrutiny faced by other retailers. The U.S. must urgently curb these shipments and force these companies to correct their poor compliance practices,” a committee spokesperson told CNBC.

The spokesman added: “Congress must urgently pass a de minimis reform bill.”

As Shein got here under increasing scrutiny, the corporate's hopes of completing its long-awaited U.S. IPO faded.

Lawmakers wish to limit the influence of Chinese-linked retailers on the U.S. economy and take steps to level the playing field for American corporations, but they’re unlikely to propose a whole ban on Shein and Temu, as was done with social media company TikTok.

Instead, quite a few politicians called on the US Securities and Exchange Commission (SEC) to dam Shein's IPO, citing the de minimis exemption as the most effective solution to curb the corporate's growth.

Now, greater than a 12 months after those efforts began and Shein's own sputtering charm offensive, plans for a New York IPO have all but collapsed, and within the hope of a friendlier reception there, the corporate has turned to London.

In June, CNBC reported that Shein had confidentially filed for an IPO in London because it faced backlash within the United States.

It is unclear what impact the proposed de minimis changes may have on Shein's IPO plans.