Locking A Loophole

A couple of years ago, I found myself waiting for like a month for something I acquired from a crowdfunding campaign. The device, a tablet I ended up writing both a review and a follow-up for, was in the U.S. for something like two and a half weeks, just sitting there in customs.

It was nerve-wracking as all get-out. But the customs process eventually did what it was supposed to, and I got my weird Linux tablet.

Meanwhile, Temu has managed this model where it ships stuff directly from China, no lengthy stay in customs necessary. Why is that? One answer can be found in an obscure legal principle, called de minimis.

Essentially, de minimis, at a very simplified level, refers to the idea of something being such small potatoes that it’s not worth the legal system’s time. It is not limited to import law, but it fits neatly into import law context when it comes to shipping goods from other countries. The U.S. codified this into section 321 of the Tariff Act of 1930, which allows for the import of goods “free of duty and of any tax imposed on or by reason of importation” under a certain price point.

Put in layman’s terms, Americans care when you ship a pallet of obscure Linux tablets that cost less than $800 each, but mostly can’t be bothered to check when you ship just one.

De minimis is essentially intended for one person acquiring one item from another person without having to go through the massive headache of customs. It is a rule that essentially exists with the presumption that checking every single package would be a massive pain in the ass, even if it is technically not in the spirit of the law.

But there’s just one problem. In 1930, we didn’t have a digital infrastructure that allowed people to ship lots of small things at scale across borders. Now, technology makes it trivial, even if you’re halfway across the world.

The cheap junk on Temu essentially exists to leverage a customs loophole. (Focal Foto/Flickr)

Companies like Shein and Temu essentially exist to exploit this rule. They built their entire business models around the idea that if they had a large enough scale, they could essentially cut down on their shipping costs significantly by embracing this loophole. This has made it possible for the companies to go mainstream in an extremely short amount of time. These companies sell cheap junk of the fast fashion or minor trinket variety for just a few dollars, as long as you’re willing to wait a few extra days for it to travel overseas.

The Biden Administration now wants to change this rule, for obvious reasons: It is a rule developed for a society that presumed nobody would put in the level of work to ship random junk across international borders. Turns out, we just hadn’t developed the infrastructure for that.

The result is that, per Biden, the de minimis exception has increased nearly tenfold in just a decade, to nearly 1 billion shipments per year, which is nuts. (And he’s not the first to suggest this, either: The European Union has been developing similar rules.)

I do see some areas where this might be frustrating or problematic. For one, if you’re trying to buy obscure technology parts that are only available on Chinese e-commerce sites like AliExpress, there’s a chance you may be paying more for those goods. In certain niche markets, prices can get pretty exploitative, and cheap Chinese goods are a good workaround for that. But at the same time, there is an argument that, by limiting customs exposure, it’s leading to lower-quality products entering Western markets.

Of course, dropping de minimis in general would be bad news. To hear it from the National Foreign Trade Council, which has a clear interest in keeping it around, it would make shipping cost almost as much as the product itself in many cases.

So the Biden administration’s strategy is essentially to make tracking more significant than it has been in the past, to ensure the stream isn’t being flooded by millions of shipments by one company. Simultaneously, Biden is attempting to narrow the categories of shipments under which de minimis rules. Essentially, they don’t want random companies with limited regulatory oversight to just ship crap across borders in a way that cannot be easily tracked.

To be clear, this method of selling cheap junk does benefit the consumer in some way. It’s the reason that $20 shoes exist, rather than just $100 shoes. But Temu and Shein have long represented something different—with a model that skips the middle man of sending the cheap junk through Amazon and sending it directly to consumers. This model allows them to ship stuff that doesn’t fit local manufacturing standards—think exploding heaters, heavy metals, or unsafe products that were previously banned—right under customs agents’ noses.

Biden, by making this move and pushing Congress to pass a law to close this loophole for massive e-commerce providers, wants to draw a line in the sand: If the Temu model is going to happen, Temu needs to pay customs—or, at the very least, stand up to more regulatory scrutiny.

So your junk is about to get harder to ship, but it might be a good thing for consumers in the end.