With the rapid development of global e-commerce, tax policies have become a crucial battleground for competition among major platforms. Amazon once dominated the U.S. market by leveraging tax laws to keep product prices low, and now the Chinese e-commerce platform TEMU has established a foothold in the U.S. market by employing similar strategies. It can be said that the former planted the tree, and the latter enjoys the shade. However, as the regulatory environment continues to evolve, how should Chinese cross-border e-commerce platforms appropriately respond to changes in tax policies?

1. Amazon "Planted the Tree"

In the 1992 case of Quill Corp v. North Dakota, the U.S. established the principle that any retailer is only obligated to collect sales tax from shoppers if it has a substantial physical presence in the state. At the time, Amazon did not have a physical presence in most U.S. states where it sold products, so it was not required to collect sales tax.

The well-known "$800 rule" was established in February 2015 when then-President Obama signed the Trade Facilitation and Trade Enforcement Act, which significantly raised the "de minimis" exemption threshold from $200 to $800. The Obama administration's intention was simple: first, to allow customs to focus limited tax collection resources on large shipments, thereby bringing more tariff revenue to the Treasury; and second, to promote the faster and better development of e-commerce.

In fact, the biggest behind-the-scenes advocate for this policy was Amazon. After all, in an environment where Amazon dominated U.S. e-commerce, promoting the development of e-commerce was almost synonymous with promoting Amazon's growth. Product pricing played a key role in attracting people to shop online, and since Amazon did not need to collect sales tax, it could offer lower prices than local retailers who could not avoid taxes, maintaining the advantage of "lower prices" for many years.

In 2020, the U.S. sales tax policy changed again. Most U.S. states began requiring Amazon to collect sales tax on behalf of third-party sellers, meaning Amazon could no longer avoid collecting sales tax. However, by this time, Amazon had grown to a point where it no longer needed to rely on this "loophole." Although the inability to avoid taxes led to a loss of some product price advantages, years of development meant that Amazon did not lose its appeal to consumers.

2. TEMU Enjoys the Shade

Amazon might not have anticipated that after exhausting all its efforts, it would eventually open a door for its Chinese counterparts.

The bill signed by Obama raised the tax exemption threshold for U.S. citizens on imported goods from $200 to $800, opening up a green channel for imported products. On the day the bill was implemented, express delivery giants like UPS and FedEx were immediately overwhelmed with orders. This "de minimis" policy significantly boosted the growth of cross-border small packages exported from China to the U.S., particularly benefiting platforms like TEMU and SHEIN, which rapidly gained market share in the U.S. with low-priced goods.

According to U.S. Customs data, 1 billion packages entered the U.S. through the "de minimis" policy in 2023, double the amount from before the 2019 pandemic. Of these, one-third originated from TEMU and SHEIN.

Since TEMU ships small packages directly from China, with categories focusing on clothing and small, lightweight items, and with average order values usually falling below the threshold (the U.S. threshold is $800), TEMU can sell goods at even lower prices without paying any tariffs, unlike Amazon or Walmart, which import goods in bulk. This has allowed TEMU to quickly expand its market in the U.S., following in Amazon's footsteps.

Bloomberg quantified TEMU's rapid growth in the U.S., reporting an 805% increase in sales in January 2024 compared to January 2023. The role of the "de minimis" policy in driving TEMU's early development in the U.S. is undoubtedly significant.

To some extent, the "de minimis" policy has indeed promoted the development of Chinese cross-border e-commerce platforms, but it is not the core driving force, especially as TEMU continues its rapid expansion in global markets, this policy's impact will become increasingly limited. Like Amazon, when the time comes that taxes cannot be avoided, TEMU will likely have developed to the point where it no longer needs to rely on this policy. Moreover, according to data cited by Forbes, even after being taxed, TEMU still maintains a nearly 40% price advantage compared to Amazon in the apparel category, thanks to a 12.5% tariff. This unique advantage is key to TEMU's ability to attract consumers.

3. How to Properly Respond to Changes in the "De Minimis" Policy?

Perhaps feeling the pressure from the rapid growth of Chinese cross-border e-commerce packages, the U.S. has recently discussed changes to the $800 "de minimis" policy.

A proposal in the U.S. Senate suggests banning Chinese exports from entering the U.S. through the de minimis channel and setting a reciprocal threshold for duty-free imports of U.S. exports, similar to the duty-free treatment U.S. exporters receive in other countries. The legislation is seen as effectively eliminating the de minimis treatment for Chinese imports and requires the CBP to collect more information on low-value goods. However, trade professionals question the feasibility of setting different minimum standards for each country.

The "de minimis" threshold is a common feature in trade policies around the world, setting a value limit for imported goods that, if not exceeded, are exempt from taxes and formal customs procedures. However, the threshold varies by country; for instance, Australia's threshold is $1,000, Canada's is $20, and the average threshold in Europe is about $190.

As Chinese e-commerce platforms like TEMU and SHEIN, which rely on low prices, make significant inroads into the U.S. market, the "de minimis" policy has become one of their preferred shipping methods. However, while this rule facilitates trade, it also raises concerns, especially as the U.S. seeks to adjust the "de minimis" rules, potentially creating new pressures.

Chinese e-commerce companies have previously faced obstacles in the U.S. market, from accusations related to data security and intellectual property rights to the current rigorous scrutiny of incoming packages. Therefore, for Chinese cross-border e-commerce platforms to achieve sustainable global development, they need to further improve their ability to respond to tax risks on imported goods.

Currently, Chinese goods enter the U.S. mainly through three channels: the first is the direct mail model, where goods are shipped directly from Chinese warehouses to U.S. consumers using express or international small package channels; the second is the partnership model, where merchants collaborate with third-party logistics companies, with the logistics company handling warehousing, customs clearance, and delivery from China to the U.S.; the third is the overseas warehouse model, where goods are shipped in advance to overseas warehouses in the U.S. and then delivered to consumers from there. For Chinese cross-border e-commerce, their logistics choices mainly revolve around direct mail and overseas warehouse models. Specifically, small and medium-sized merchants mostly use the direct mail model, while larger platforms and enterprises have the financial resources to fulfill cross-border logistics through the overseas warehouse model.

Comparing the current policies, merchants using the direct mail model benefit the most, as independent site sellers (such as those on Shopify), third-party platform sellers (such as AliExpress), and cross-border e-commerce platforms like TEMU and SHEIN, which primarily ship directly from China, all favor this model and use the "de minimis" policy to enjoy tax exemptions for small goods. The cancellation of the low-value tax exemption would significantly impact these direct mail e-commerce businesses, as their product price advantage would be weakened. Additionally, if informal customs clearance procedures cannot be applied, the inspection process for goods arriving at the border will become more complicated, and customs clearance speeds will be affected.

Nevertheless, Chinese cross-border e-commerce platforms still possess international competitiveness but need to be prepared with a toolkit to address potential new regulatory restrictions and sanctions. In terms of specific measures, Chuck Li, a U.S. stock analyst, suggests that given the ongoing negotiations over de minimis thresholds, using overseas warehouses to mitigate tariff risks remains a sustainable option. For high-margin, high-ticket, and bulk stock items, setting up overseas warehouses is advisable.

Looking ahead, the U.S. legal and policy adjustments in the "de minimis" area will remain a focal point. For Chinese e-commerce platforms, addressing the "de minimis" issue is not just a matter of cost but also involves key considerations related to compliance, business strategy, and brand building. It is a systemic issue. To adapt to the new global e-commerce environment, understanding local policies, enhancing localized operations, and building resilience to geopolitical and economic risks will become essential courses for cross-border e-commerce platforms.

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Official Account: Cross-Border E-commerce Logistics Baixiaosheng