America's trade war is coming for Gen Z's favorites

• Many Gen Zers purchase cheap goods from the Chinese e-commerce companies Shein and Temu.
• The Biden administration is taking steps to make more Chinese imports subject to import fees.

Two of Gen Z's favorite shopping platforms for cheap goods could get more expensive in the near future.

On September 13, the Biden administration announced it was taking steps to reduce the "abuse" of a trade law that has allowed the goods of many companies, including popular Chinese e-commerce companies Shein and Temu, to avoid taxes and tariffs when they enter the US. The trade provision, called "de minimis," allows US consumers to avoid paying these import fees on direct-to-consumer shipments of less than $800.

In fact, a House Select Committee report published last year estimated that more than 30% of packages shipped to the US under the de minimis provision came from Shein and Temu.

The administration's announcement included a new rule proposal that would remove this exemption for many Chinese imports, including most clothing products. These imports would become subject to import taxes and tariffs — potentially leading to higher prices for the many Americans who buy apparel, home decor, or electronics from the likes of Shein and Temu.

If Shein and Temu's costs rise, this could hit Gen Z the hardest. An estimated 40% to 45% of Shein and Temu's US customers are Gen Z, Chad Schofield, cofounder of the e-commerce logistics management platform BoxC, told Business Insider. He said he wouldn't be surprised if the proposal sparked some backlash among young Americans.

"Nineteen-year-old girls will scream bloody murder if it's going to be more expensive," he joked.

If the proposal goes into effect, a $40 Shein or Temu purchase, for example, could become roughly $50 once the new import fees are added — effectively a 25% increase — Schofield said. However, import fees could vary by product. Juozas Kaziukėnas, founder of the e-commerce intelligence firm Marketplace Pulse, told BI that many Shein and Temu products would likely face import fees between 15% and 20%.

The proposal aims to help protect American businesses and consumers from a rapidly growing number of imports. Over the last decade, the number of annual de minimis shipments has grown from roughly 140 million to one billion, and more of these shipments come from China than all other countries combined. In a fact sheet, the Biden administration said the rise in these shipments has made it more difficult for the US to enforce trade laws, protect consumers, and prevent illicit drugs like fentanyl from entering the country because these shipments face more lax customs inspections. There is also concern that competition from these low-cost imports is hurting US businesses that can't compete on price.

While the administration didn't name Shein or Temu directly in its announcement, experts told BI that these companies were likely top of mind.

The proposal is part of a broader Biden administration effort to protect US businesses from competition with cheap Chinese goods — and ensure the US isn't reliant on China, in part for national security reasons. On the same day the administration announced its rule proposal, new tariffs took effect that will target roughly $18 billion worth of Chinese goods, including solar cells, semiconductors, and electric vehicles. Meanwhile, challenges to President Joe Biden's law banning TikTok in the US are heading to the courts.

To be sure, many millennials and Gen Xers are also Shein and Temu customers. Additionally, many Americans across generations aren't fans of the fast fashion these companies specialize in — in part due to concerns about their labor practices and product safety standards.

How Shein and Temu could work around the proposal

If prices rise on Shein and Temu goods, it could help some companies that don't source as many of their products from China. This includes large e-commerce businesses like Amazon.

"Everything on Temu is also on Amazon but more expensive and faster shipping," said Kaziukėnas, adding, "The price gap between the same product on Amazon and Temu is going to shrink but it's not going to disappear completely."

However, it remains to be seen how much — and when — prices will rise for Shein and Temu shoppers.

Schofield estimated that the Biden administration's proposal wouldn't take effect for at least 18 months, at which point another president will be in office. He said a public comment period is required and that the e-commerce industry could lobby against it. If Congress passed a law that revised the de minimis provision — something the administration has pushed for — the rollout of import fees could be expedited and potentially hit consumers sooner than 18 months.

If former President Donald Trump is re-elected, he could also decide to change course, though Schofield said he wouldn't expect him to given his prior policy stances on China. If Vice President Kamala Harris wins, she would be expected to pursue a similar course as Biden.

Even once these fees took effect, there are a few ways Shein and Temu could try to keep prices low for consumers. For one, Temu and Shein could "share the burden" with customers, raising prices modestly but subsidizing the rest of the import fees, Kaziukėnas said.

Additionally, Temu and Shein could reduce their direct-to-consumer shipments from China and bring more of their inventory to warehouses in the US for distribution. Schofield said these companies are already warehousing some of their more popular products and that leaning into this further could help them keep costs low for consumers.

If the de minimis reforms come to pass, Schofield said Temu or Shein could avoid the full impact of the new import fees by importing large product shipments to store at US warehouses. By doing so, they would pay fees based on the "manufacturing cost" in China, rather than the retail price a US consumer would face for a direct-to-consumer purchase from China. Schofield said the manufacturing cost could often be roughly half of the retail price.

Embracing the warehousing strategy would still force Temu and Shein to pay import fees that they didn't have to pay when it was shipping sub-$800 orders directly to consumers from China. The companies could choose to increase prices as a result, but Schofield said he'd expect the increases to be considerably lower than what a consumer would encounter with a direct shipment from China.

Additionally, it's possible that Chinese companies like Shein and Temu could seek to import goods from Canada or Mexico — allowing them to bypass the import fees that de minimis reforms would bring.

However, these strategic shifts would require the companies to stray from the direct-to-consumer models that have fueled their success.

The proposals would affect more than just Shein and Temu

It's not just Shein and Temu that could raise prices in response to the Biden administration's proposal. Schofield said many US businesses also import goods direct-to-consumer from Chinese factories. This includes smaller businesses and startups that don't have the resources to warehouse their goods in the US. They would face these import fees as well, and Schofield said they'd likely have a tougher time adapting than companies the size of Shein or Temu.

"It affects anything that's being shipped direct-to-consumer from China — any company," Schofield said. "So it's not just a purely Temu or Shein issue."

Since the proposal was announced, both Shein and Temu have said the de minimis exemption is not key to their success.

When reached for comment, a Temu spokesperson pointed Business Insider to comments the company made in February. At the time, the spokesperson said Temu's "supply-chain efficiencies and operational proficiencies" were the primary drivers of its growth.

"We are open to and supportive of any policy adjustments made by legislators that align with consumer interests," they said. "We believe that as long as these policies are fair, they won't influence the outcomes of competitive business dynamics."

A Shein spokesperson told BI that that complying with any reforms to US trade law will be a "top priority" for the company.

"Our success is anchored in our unique on-demand business model, which allows us to bring customers the styles they want, efficiently and at an affordable price," they said.

Shein did not respond to a request for comment from BI.

Going forward, neither Kaziukėnas nor Schofield said they expect the import fees to take much wind out of Shein or Temu's sails.

"Temu and Shein won't disappear and will continue to be disruptive," Kaziukėnas said. "If price is the ultimate value proposition then they'll continue to steal market share."

Schofield said Shein and Temu have already been paying similar import fees for years in Canada, and they still have a large customer base.

"They made that work in Canada, they could adapt in the US," Schofield said. "I don't see them really slowing down."

Do you save money by buying from Shein and Temu? Are you willing to share your story? If so, reach out to this reporter at jzinkula@businessinsider.com.