How De Minimis Reform Could End Fast Fashion's Duty-Free Ride

Written by Tirsa Parrish

Closing The De Minimis Loophole: Protecting American Consumers and Workers

De minimis: a latin term meaning “of little importance”refers to something so minor in value or significance that the law usually overlooks it. In trade, the de minimis exception allows goods valued under $800 to enter the U.S. duty-free. Originally, this exception was designed to simplify regulations for travelers and small purchases. However, it's now being exploited by large e-commerce companies, particularly those linked to China, to bypass trade laws, impacting industries like fashion.

We break down how this loophole is affecting the fashion industry, the environment, and American jobs. For a more in depth explanation of the de minimis exception and how it is impacting the fashion industry here.  

Fast Fashion Dilemma: A Growing Problem

Fast fashion has become a global concern due to its far-reaching negative impacts. From environmental degradation to exploiting labor practices, the rapid turnover of cheap, trendy clothing comes at a high cost. The demand for new styles has also led to an increase in intellectual property theft, further damaging small designers and brands.

E-commerce giants like Shein and Temu have mastered the art of leveraging the de minimis exception. By sending small shipments directly to American consumers, these companies avoid paying import duties, resulting in millions of dollars in lost revenue for the U.S. economy and undercutting American businesses. 

Biden Administration Crackdown on De Minimis Abuse

On September 13, 2024, the Biden administration took decisive action to address what it termed “overuse and abuse” of the de minimis exception. The administration's new measures aim to close the loophole that has allowed Chinese-based fast fashion retailers to flood the U.S. market with cheap goods, avoiding tariffs, and bypassing safety standards.

White House outlined key regulatory changes, including:

• Exclusion of Tariffed Goods:

  Overseas shipments of products that are subject to US-China tariffs are no longer eligible for exemption. This targets fast fashion imports, which exploit these trade laws to avoid tariffs.

• Enhanced Data Requirements:

  New rules will require additional detailed information on shipments, including the 10-digit tariff classification number and the identity of the party claiming the de minimis exemption. This will help U.S Customs and Border Protection more effectively track shipments and block illegal or unsafe goods.

The Scale of The Problem

In the last decade, the number of de minimis shipments entering the U.S. has skyrocketed - from 140 million annually to over one billion. This exponential growth has made it increasingly difficult for customs officials to monitor shipments for violations, including counterfeit goods and items that do not meet health and safety standards. The Deputy National Security Advisor Daleep Singh noted, “The drastic increase in de minimis shipments has made it increasingly difficult to target and block illegal or unsafe shipments coming into the US”.

Impact on the Fashion Industry: A Game Changer

One of the most significant impacts of the crackdown will be felt by the fashion industry. “Since approximately 70% of Chinese textile and apparel imports are subject to section 301 tariffs, this step will drastically reduce the number of (fast fashion) shipments entering (the U.S. without scrutiny),” said Singh. This move is designed to protect American textiles and apparel manufacturers, who have long been at a disadvantage due to the flood of duty-free, low cost imports.

By closing the de minimis loophole, the administration aims to level the playing field for U.S. manufacturers and ensure that imports comply with U.S. trade laws and safety standards. 

Conclusion: A Step Forward for U.S. Workers and the Environment

The de minimis exemption, initially designed to simplify trade, has morphed into a loophole for fast fashion and other industries, enabling them to flood the U.S. market with cheap, often unsafe goods. By closing the loophole, the Biden administration is taking a stand for American workers, businesses, and the environment. However, sustained legislative action is needed to ensure these changes endure and the U.S. market remains fair and competitive.

As the de minimis reforms take shape, the fashion industry, and fast fashion in particular, will face new challenges. These changes also offer an opportunity for sustainable, responsible fashion brands to thrive in a more regulated market.