How A Trade Loophole Supercharged Sites Like Wish and Temu
And why there is no guarantee as to what is in the boxes
If you have ever wondered how websites like Wish and Temu are allowed to exist, you are not alone. These sites are known for offering knockoff products, off-brand lookalikes, and items of dubious quality for hilariously low prices. In many cases, people open their boxes (which can take weeks to arrive) only to find that they have been duped. In one recent and egregious example, buyers were frustrated to learn that they had bought into a convincing knockoff of a Solid State Drive (SSD) for their computer. AliExpress was pushing something called the Samsung 1080 ProSamsung 1080 Pro and promising lightning fast speeds. But the product was fake.
If this occurred at a brick-and-mortar retail store in the United States, customers would have multiple avenues to try and seek recourse. The business would likely be reported to the Better Business Bureau, the Federal Trade Commission, or even the local police. The business owner would be at risk of making the news or even facing criminal charges. Buyers could also pursue a civil lawsuit, and if enough people bought the bogus product, it could evolve into a class action lawsuit. While people get scammed in the United States all of the time, there are more robust procedures in place to ensure that these kinds of business practices do not proliferate.
But there are no similar procedures in place to combat problems stemming from purchases made on sites like Wish, Temu and AliExpress. Why is that? The answer has something to do with de minimis trade laws. De minimis laws are essentially a loophole that has been heavily exploited by overseas exporters, which has led to an absolute explosion and proliferation of cheap knockoff products flowing into the United States through traditional mail carriers. Here is how it works.
De Minimis Limits
A de minimis limit is a threshold in which items are eligible for duties and customs. Items under the limit are exempt from these procedures. The laws were made to primarily target travelers and small businesses so that every tourist coming home from the Caribbean didn’t have to fill out paperwork for every $10 shell necklace they bought after chugging a few tropical cocktails.
In 2016, the United States raised its de minimis limit to a very generous $800. Prior to the increase, the limit was just $200. This means that any purchase (or box of goods) deemed less than $800 can essentially enter the United States scot-free. These goods are not taxed, and shippers do not need to declare honestly what is inside the box. Even if they do declare something, no one is really checking. All shippers have to do is sign off on the fact that the box contains legal items worth less than $800. Anyone who has been on one of these foreign e-commerce sites can attest that $800 can buy a lot of knockoffs.
This essentially turned the modern trade landscape in the United States on its head.
Prior to the upping of the de minimis limits, trade from countries like China was very predictable. Items were typically bought in bulk from US wholesalers for good prices. The items were then declared and processed through customs. After they were cleared, they showed up on the docks of major ports, like Los Angeles, in giant shipping containers where they were shipped to the warehouse of the wholesalers and then resold to the American public. (This is still how a lot of trade is conducted.)
Now, buyers can connect directly with manufacturers overseas through sites like Temu and have the items shipped piecemeal to their door through more traditional methods, thus skirting around any customs enforcement, as long as said parcels are worth less than $800.
This is why these sites are exploding in popularity and usage within the United States and why the growth has been relatively recent.
A Growing Backlash
There is a growing backlash to this loophole. American businesses are frustrated that they are struggling to compete with these overseas retailers. A coalition of politicians, labor representatives, and American businesses are starting to push back against the high de minimis limits.
In 2023, a bipartisan bill was introduced by Bill Cassidy (R-LA) and Tammy Baldwin (D-WI) to address this very issue. The bill would “bar Chinese exports from entry via the expedited “de minimis” channel and reduce the threshold for duty-free imports into the U.S. to an amount that matches the threshold our trade partners use, ensuring reciprocity and increasing transparency at our borders.” It sounds like common sense but the bill never advanced past the introductory stages.
However, that might change in the future. There are still efforts underway to make this loophole more apparent to the American consumer.
In a recent interview with CNBC, Representative Mike Gallagher (R-WI) said:
According to CBP, more than 485 million de minimis shipments have already entered the United States in FY ’24, on top of the 1.05 billion shipments that entered tax-free under de minimis rules in 2023, itself a shocking 53% increase from 2022…No less than 94% of all import transactions now enter the U.S. through de minimis rules, accounting for 90% of all illegal narcotics, agricultural goods, and counterfeit seizures by customs.
That is a lot of packages! These numbers also highlight the fact that this problem is only growing. Overseas retailers are starting to exploit this loophole with greater effect.
Highlighting the bipartisan nature of this backlash, Representative Earl Blumenauer (D-OR) said the following:
De minimis is not just a threat to American businesses and consumers, as if that weren’t enough, but it is increasingly contributing to the fentanyl crisis ravaging our communities. It is past time for Congress to act. We will not take ‘no’ for an answer.
With growing cries coming from both sides of the aisle, it is possible that the de minimis limits could be lowered in the future. Lowering the de minimis threshold back to where it was ($200) would help cut down on the flow of goods entering the country without having to go through customs.
Conclusion
Websites like Wish and Temu have garnered reputations for putting out sketchy products and cheap junk. There are thousands of Americans who have never received their packages from these sites and thousands more who have received different products, not as advertised, from these sites. This is because, thanks to the generous de minimis thresholds in the United States, these companies can ship goods in without having to make a declaration (or pay taxes), which has led to a deluge of boxes flowing in from out of the country.
Not being able to be held accountable, not having to pay taxes, and not having to make proper declarations of goods have given these companies an advantage over domestic competition. Some people think these advantages are unfair, and there is a growing awareness and backlash against these rules. Only time will tell if things will change.
