AYESHA RASCOE, HOST:
Big changes are coming to companies selling very cheap things from China like Shein and Temu. Inside President Trump's new tariffs on China is a plan to end a tax loophole that has helped these companies explode in recent years. NPR business correspondent Alina Selyukh is here to tell us more. Hi, Alina.
ALINA SELYUKH, BYLINE: Hello, hello.
RASCOE: So tell us about this loophole. How has it worked?
SELYUKH: OK, so whenever a foreign shipment comes into the U.S., it goes through customs. And if it is a big shipment, it gets inspected, and the importer has to pay an import tax. That's a tariff. But for almost a century, U.S. law has carved out an exemption for small packages under a certain value, like $200. And the idea was like, if you're an American tourist shipping something back home, for example, you shouldn't have to pay an import tax. They even called this loophole de minimis, which is Latin for something trivial, insignificant. Well, over time, this little exemption became huge business because of online shopping.
RASCOE: And that's where Shein and Temu came in.
SELYUKH: Shein and Temu and TikTok Shop and Amazon, that has many, many Chinese sellers. About a decade ago, Congress expanded the exemption to packages worth under $800. So if you're shipping a box of clothes or kitchenware under $800, it's duty-free. You get faster inspection and skip the tariffs. And these online sellers realized this is a big advantage. Most retailers ship in bulk to U.S. warehouses, so they go through all the custom steps. But Shein and Temu mostly ship directly from their Chinese suppliers to your doorstep here in the U.S., and that's duty-free. It saves them millions of dollars, and that's part of the reason why they're able to charge $10 for a dress or $30 for a dresser. And that is how they went from companies we hadn't heard of to, you know, very popular, growing fast.
RASCOE: So is the exemption going away, meaning every package from China to the U.S. is subject to inspection and tariffs?
SELYUKH: That's the idea. So the loophole was supposed to end already, but there was a lot of concern that this rapid change would overwhelm Customs. So the Trump administration has pushed back the end date until Customs is ready. But I should note, you know, closing this tariff loophole has bipartisan support. President Biden had proposed ending it, saying it undercuts American companies. And a big group of Democrats in Congress had written that foreign importers use the loophole for less strict inspections of packages containing, for example, unsafe toys or even fentanyl and drug processing equipment, which is the argument President Trump is making now.
RASCOE: When the loophole ends, will Shein and Temu have to raise their prices?
SELYUKH: Or they might have to change how they run their business. The companies have not commented, by the way, but they do have a few choices. So they can start shipping less directly from China. They could start shipping in bulk to warehouses in the U.S., like a traditional retailer. They might make more stuff in other countries, like Shein has started doing in Brazil and Turkey. Or they might use the common tariff evasion technique, which is to briefly reroute shipments through elsewhere in Asia before shipping to the U.S. Alternatively, they stick to their guns and keep operating as they have, and that means more scrutiny of their packages at Customs, more time, and, of course, more tariffs.
RASCOE: Whatever they do, it sounds like new costs for them, which brings us back to what I just mentioned...
SELYUKH: Yeah.
RASCOE: ...Higher prices.
SELYUKH: It's not guaranteed that shoppers will end up paying those costs, but typically, they do end up paying the tariffs costs, and that would threaten kind of the very reason people choose Shein and Temu. They're ultracheap. Shoppers tend to make this calculation, like, maybe it's not the highest quality, maybe it takes a while to ship, but it is so cheap, it's worth it. And the price going up would change that math.
RASCOE: That's NPR's Alina Selyukh. Alina, thank you so much.
SELYUKH: Thank you. Transcript provided by NPR, Copyright NPR.
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