Yes, Amazon somehow plans to sell us $20 sofas
The retail juggernaut is copying Chinese fast-fashion retailers’ fulfillment strategies in order to compete with them.
In August, I wrote about how Chinese fast-fashion retailers Shein and Temu had taken advantage of a particular part of US tariff regulations, the “de minimis” loophole, to ship tariff-free goods to US customers. The de minimis exemption was included in the Tariff Act of 1930 to allow low-cost imports to enter the country duty-free to expedite transit through customs, but thanks to an explosion in direct-to-consumer e-commerce businesses, international retailers have been able to use it to ship low-cost packages directly to consumers.
In 2023, roughly 1 billion shipments worth a total of $54 billion entered the United States through the de minimis loophole, and most of those shipments came from China:
A congressional investigation from last year showed that, in 2022, 30% of total US de minimis imports came from Shein and Temu, and 62% came from China as a whole. That’s hundreds of millions of imports worth billions of dollars that may soon be subject to different import standards.
The US government 1) likes tax revenue, and 2) does not like when Chinese companies can undercut US companies on price. So, as you would expect, in September, the Biden administration announced it would be taking action to address the “significant increased abuse of the de minimis exemption, in particular China-founded e-commerce platforms.” We have yet to see what those rules will look like, though the White House’s press release noted that its proposed rules would “exclude from the de minimis exemption all shipments containing products covered by tariffs imposed under Sections 201 or 301 of the Trade Act of 1974, or Section 232 of the Trade Expansion Act of 1962.” For context, Sections 201, 301, and 232 deal with safeguards to help domestic producers compete with foreign imports, China, and national security, respectively.
My first thought, when seeing that the White House is cracking down on Chinese e-commerce companies taking advantage of a tariff loophole, was, “Good. Let American companies have a chance!” My second thought, however, was, “But why haven’t American companies… also been using this loophole?”
Anyway, it turns out that Amazon was planning to do just that. On Tuesday morning, The Information reported some fascinating details regarding Amazon’s soon-to-be-launched low-price storefront:
As Amazon prepares to launch a new low-price storefront to combat Temu, it’s imposing severe price caps on what merchants can charge for their wares on the outlet, including an $8 limit for jewelry, $9 for bedding sets, $13 for guitars and $20 for sofas, according to messages from Amazon to merchants seen by The Information.
A $20 sofa seems absurd, but it looks like the key to Amazon’s low-price storefront is simply copying the Temu/Shein fulfillment model:
Amazon plans to ship orders to US customers from a facility in Guangdong, China, and is charging sellers significantly lower fulfillment fees for items sold through the new storefront than it does when shipping items domestically.
Assuming that the US government does crack down on de minimis shipments from China, and Amazon follows through with its plans to ship orders from Guangdong, the Seattle-based e-commerce giant will also be subject to the tariff increases. However, after years of reports of China stealing American intellectual property, it’s nice to see an American company flip the script and copy a Chinese company’s secret to success.
