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Temu, the popular online marketplace, has announced a significant shift in its fulfillment strategy for U.S. customers. The company will no longer ship products directly from China to U.S. buyers. Instead, Temu will adopt a “local fulfillment model,” partnering with U.S.-based sellers to process and ship all domestic orders. This decision comes in response to new regulations affecting duty-free treatment for low-value imports, specifically targeting the de minimis exemption, which previously allowed goods valued under $800 to enter the U.S. without duties or taxes.

Shift to Local Fulfillment Model:

Temu’s move to recruit U.S. businesses for its platform marks a strategic pivot in the way it handles sales in the United States. The company emphasized that all U.S. orders will now be processed by domestic vendors, effectively eliminating the reliance on international shipping from China. This change aims to help local businesses grow by providing them with access to a broader customer base across the country.

The de minimis exemption, which allowed shipments of low-value goods to enter the U.S. without duties, was a key factor in Temu and its competitors, like Shein, offering affordable products to U.S. consumers. However, the exemption’s controversial impact on U.S. industries has led to growing scrutiny and regulatory changes.

Understanding the De Minimis Rule:

The de minimis rule, a policy enacted in 1938, allows shipments valued under $800 to enter the U.S. without being subject to customs duties or taxes. This regulation was designed to streamline imports by eliminating trivial import fees. Over time, the exemption threshold has increased, and in recent years, it has become a loophole exploited by companies like Temu and Shein to ship vast quantities of low-cost items directly from overseas.

According to Customs and Border Protection (CBP), parcels affected by the de minimis exemption accounted for over 90% of incoming cargo, leading to a massive surge in small-package shipments. Both Temu and Shein leveraged this rule to grow rapidly by offering products at low prices, largely due to the lack of import duties.

However, a growing number of critics, including high-profile political figures like Donald Trump and Joe Biden, have voiced concerns that the exemption was harming U.S. manufacturers, facilitating drug smuggling, and overwhelming customs enforcement efforts.

Recent Regulatory Changes and Rising Operational Costs:

In response to mounting concerns over the exemption, both the Trump and Biden administrations have taken steps to curb its use. The Trump administration temporarily halted the de minimis exemption earlier this year, causing disruptions for U.S. delivery companies and online retailers that relied on the rule. During this period, the U.S. Postal Service stopped accepting parcels from China and Hong Kong, further complicating the situation for companies like Temu.

The Biden administration has continued these efforts, focusing on blocking illegal synthetic drugs such as fentanyl, which are often smuggled in small packages. The new executive orders aim to address the growing problem of illicit drugs entering the U.S. through international shipping channels. Authorities have pointed out that deceptive practices by some Chinese exporters exploited the de minimis rule, enabling the entry of harmful substances into the country.

Rising Tariffs and Customs Challenges:

As part of the broader effort to address trade imbalances and security concerns, the U.S. government has reimposed tariffs on select Chinese goods. In January, tariffs on certain products were increased by as much as 145%, with some products facing a total levy of up to 245%. U.S. officials argue that the growing volume of small shipments from China has overwhelmed customs and inspection staff, complicating efforts to screen for dangerous or contraband goods.

The American Action Forum has warned that the elimination of the de minimis exemption could add between $8 billion and $30 billion in annual costs to U.S. consumers. These costs would primarily arise from the imposition of new tariffs or flat fees on low-value imports, raising prices for shoppers across the country.

Global Trend Toward Tightened Import Regulations:

The push to limit low-value imports is not confined to the U.S. Other countries, including the UK and the European Union, are also reassessing their duty-free thresholds. In the UK, the government has initiated a review of low-value import rules, with Chancellor Rachel Reeves claiming that the current system undermines local retailers and commerce. Similarly, the European Union is set to abolish its €150 duty-free threshold for parcels, a move that could result in higher prices for consumers in the EU as well.

While these changes may benefit domestic businesses, critics argue that they may not fully address the underlying issues, such as drug trafficking and the increasing burden on customs officers tasked with inspecting shipments.

Concerns About Customs Strain and Effectiveness:

Experts have raised concerns about the effectiveness of these new import regulations in curbing illegal activity. Despite tightening rules on small packages, officials acknowledge that illegal drugs, including fentanyl, are still entering the U.S. through other channels, particularly from Mexico. Some argue that eliminating the de minimis exemption will place an additional strain on an already overburdened Customs and Border Protection (CBP) agency, which may struggle to handle the increased workload.

The National Foreign Trade Council has warned that removing the exemption would force CBP to either hire additional staff or reassign agents from other critical areas, such as the southern border, where efforts to combat drug trafficking are already stretched thin.

As Temu shifts to a domestic fulfillment model in response to changing U.S. trade policies, both consumers and businesses may face a new set of challenges. While the move is designed to comply with new import regulations, it highlights the growing tension between facilitating international trade and protecting domestic industries. As U.S. leadership continues to adjust import policies, the impact on both shoppers and retailers will continue to evolve.