Foreign Fast Fashion Firms Facing Headwinds Over De Minimis, Forced Labor

Sentiment surrounding the U.S.-China trade relationship is at a nadir, with lawmakers on both sides of the aisle—and the presidential ticket—grasping for the toughest-on-China stance.

And at the heart of that debate, in recent months, is Section 321, otherwise known as the de minimis trade exception. Nearly half a billion packages have entered the U.S. duty free under the law in 2024 alone, the majority hailing from China.

During that time, backlash has been brewing. March saw the launch of the Coalition to Close the De Minimis Loophole, a bipartisan group made up of members of Congress, labor unions, manufacturers and law enforcement officials. Meanwhile, a Congressional hearing on China illuminated a proliferation of product safety concerns and regulatory violations related to de minimis shipments from the country’s leading online marketplaces.

The Department of Homeland Security (DHS) announced an enhanced customs enforcement strategy designed to safeguard American businesses, which includes more stringent screening of de minimis shipments, in early April. And this week, the House Ways and Means Committee introduced the “End China’s De Minimis Abuse Act,” which, as its name would suggest, targets the country’s outsize application of the trade rule.

As such, Chinese companies doing large volumes of business in the U.S. may be wise to envision a future without de minimis.

Though it’s been a hallmark of the success of Shein and Temu, which deal in cheap goods valued well below the threshold for duty-free entry, over the past week, both companies announced new partnerships with logistics firms designed to strengthen their standing in the U.S. market. And perhaps, usher in a new trade strategy.

Fast-fashion phenom Shein is teaming with Flexport to fulfill orders from its recently launched U.S. marketplace, while Temu has tapped two 3PLs with U.S. operations to help foster fulfillment for American shoppers.

Elise Shibles, a partner with Sandler, Travis & Rosenberg, P.A. (STR Trade) who leads the firm’s Textiles and Apparel Practice as well as its Forced Labor Practice, said there are several reasons a foreign company—especially one based in China—might be considering onshoring some operations in the U.S.

If such businesses “want to continue to grow and evolve” in this market, they must find a way to live with the possibility that trade laws, including de minimis, might change, Shibles said. Preparing for that eventuality could include opening up warehouses or distribution centers in the U.S., though they’ve been used to shipping directly to consumers’ doorsteps from their offshore production facilities.

“If they don’t have a lot of overhead in the United States, their production costs are low, they already have customer recognition, and they can consolidate their logistics in a way to make them less expensive, they may not need” to use de minimis to facilitate a healthy business in America, she believes. A whopping 70 percent of U.S. consumers have shopped on Shein or Temu, making the marketplaces household names.

With so much rancor on The Hill stemming from China’s influence on the U.S. market, companies based in China might also be eager to become “less invisible to regulatory agencies,” Shibles said. Chinese companies exploring U.S. warehouses and distribution centers may be engaging in a public relations campaign to dispel concerns about the origins of the products they sell, she explained.

Lawmakers’ suspicions about issues like forced labor have been deepened by Chinese firms’ liberal use of de minimis. Shein’s U.S. IPO has been all but thwarted by calls from Congress and more than a dozen state attorneys general to require “extraordinary disclosures” regarding its dealings with the Chinese government and its supply chain risks.

Just this week, Sen. Marco Rubio (R-Fla.) wrote to Department of Homeland Security (DHS) Secretary Alejandro Mayorkas asking him to investigate both Shein and Temu for violations of the Uyghur Forced Labor Prevention Act (UFLPA).

“Private firms and journalists have unearthed compelling evidence that both Shein and Temu are facilitating the entry of goods made with Uyghur forced labor,” he wrote Tuesday.

“Given the blatant exploitation of trade loopholes that Shein and Temu regularly demonstrate, and the high probability these companies have facilitated the importation of goods made with forced labor, I urge you to investigate these companies and add them to the exporter list…should they be in violation of federal law,” the letter said.

Often small (the majority are worth under $55), de minimis shipments tend to evade customs inspection in a way that larger loads of commercial goods cannot. Because of this, legislators, trade groups and even the Consumer Product Safety Commission (CPSC) have been sounding the alarm about illicit products making their way into the hands of U.S. consumers every day.

Shibles believes bringing in goods through more conventional trade channels with greater customs enforceability would give lawmakers and consumers greater peace of mind that a pallet of T-shirts doesn’t contain Xinjiang cotton, for example.

Establishing more U.S.-based logistics could also be a purely practical move, Shibles said. “I have had some companies tell me, ‘We’re concerned about having offshore distribution into the United States for our e-comm because it won’t get there fast enough,” she added. When competing with fast, free shipping from Amazon, every minute counts.

Overseas companies looking to get closer to consumers for the purpose of faster fulfillment might also make use of tools like a bonded warehouse or a foreign-trade zone (FTZ), characterized by the International Trade Administration as “a defined physical area within the United States that, for customs entry purposes, is treated as if it is outside U.S. borders.” Companies can save money with FTZs on warehousing, repackaging and even manufacturing on site.

“I can tell you generally there has been an increase in companies setting up foreign-trade zones in the United States, and it’s for a variety of reasons,” Scott Taylor, leader of STR Trade’s foreign-trade zones practice area, said.

The upswing started with Covid-related supply chain issues. “A lot of companies were saying, ‘We need facilities in the U.S. to hold more merchandise, so that if something gets delayed for whatever reason, we have supply for the U.S. market,’” he said.

The practice has stuck around, and grown, since then. It also offers other benefits, Taylor said.

When using an FTZ for storage, companies don’t have to pay tariffs on a product until it’s pulled out. That saves them from incurring a large tariff bill when importing a significant amount of goods into the U.S.—the duties can instead be paid over time, as sales are booked and products are shipped.

“That’s why a lot of the major footwear and apparel companies have foreign-trade zones in the U.S.,” he added. The FTZ may be established under the company’s name, or run by the third-party-logistics (3PL) partner on its behalf. Notably, though, companies can’t use the de minimis exception when shipping from FTZs.

With Washington becoming increasingly hostile toward de minimis, however, it stands to reason that companies doing significant business in the U.S. would want to reduce their reliance on the trade rule with some haste.

Congressman Earl Blumenauer (D-Ore.), a lead sponsor of the Coalition to Close the De Minimis Loophole and author of the Import Security and Fairness Act (which would stop non-market economies, like China, from utilizing the trade provision), gave an impassioned plea to his House colleagues on Wednesday.

“The Chinese have a quarter-trillion-dollar e-commerce industry that relies on our lax de minimis loophole,” he said. The country’s businesses are “counting on Congress to continue to fail to act—to look the other way and facilitate their criminal activity—while they undercut legitimate American business.”

“There’s no reason to allow a few large shippers to profit at the at the expense of the American people,” he added.