There was little chatter on the floor of the Beverly Knits textile factory in Gastonia, N.C., as a smattering of workers tended to rows of circular knitting machines that hummed and spun fabric on a September afternoon.
To CEO Ron Sytz, the quiet buzz of machinery was ominous: It feels “like a ghost town,” he said.
Beverly Knits is now operating at approximately 60% capacity and is down to less than 200 associates from its peak of 375 about two years ago, in the face of stiff competition overseas. Chinese e-commerce giants Shein and Temu are using a trade exemption known as de minimis to air ship goods directly to US shoppers duty-free at prices domestic manufacturers and retailers can’t match, like Shein’s $1.40 floral print halter top or Temu’s $7.97 slip-on walking shoes.
The business Sytz’s parents started 44 years ago—and built into one of the largest and most diversified circular knitting operations in the US, at 500,000 square feet across seven facilities—has persevered through a rise in offshoring driven mainly by the 1992 North American Free Trade Agreement, and through the coronavirus pandemic when retailers closed storefronts en masse.
But Sytz said he fears the de minimis exemption is the final straw, and that a proposed Biden administration fix can’t come fast enough.
“We’ve done what we can, and we will keep the company open and running,” said Sytz, who has worked at textile mills owned by his family since he was a teenager. “However, we’ve got to have some changes” to the de minimis exemption.
The Biden administration and lawmakers from both parties have proposed limits on the 1930s trade law that set up de minimis, which was intended to help US travelers bring back inexpensive souvenirs duty-free. The proposals come as the US seeks to prop up American manufacturing, as well as stem the flow of fentanyl and goods made with forced labor in China that can evade closer scrutiny when sent in packages marked as low value.
But questions remain about Customs and Border Protection’s ability to process and inspect the flood of low-value packages already overwhelming ports, companies finding other workarounds to bypass duties, and the impact a narrowing of de minimis would have on bargain-seeking consumers.
Textiles has been one of the most outspoken industries seeking to reel in de minimis, pointing to the trade law as one of the reasons 21 US plants closed in the past year or so.
The Chinese e-commerce giants—which typically ship directly to shoppers from warehouses based in China—appear to be benefiting from the duty-free exemption for items worth less than $800 far more than others: A Republican congressional report from June 2023 said Shein and Temu are “likely responsible for more than 30% of all packages shipped to the US” under de minimis, equivalent to 600,000 packages to the US every day.
But Sytz warned that de minimis will further hurt all kinds of US manufacturers unless the policy is changed.
“Don’t think it’s just going to be textiles—it’s going to be anything and everything” that can be shipped in a box, he said.
E-Commerce Boom
The textile industry has been a particular focus of the de minimis conversation in part because of the dramatic consumer shift to online shopping in recent years, said Josh Kagan, special counsel at Kelley Drye, who previously led the Office of the United States Trade Representative’s Office of Labor Affairs and now advises companies on international trade.
“It’s not like you just you buy one T-shirt every 15 years,” he said. “People just keep spending more and more money on it, making it a more pressing trade issue.”
E-commerce flourished during the pandemic, taking advantage of the de minimis ceiling that Congress raised from $200 to $800 in 2016 after a lobbying campaign from express shippers. Almost 90% of shipments coming into the US are now entering through “the small package environment,” Customs and Border Protection says on its website.
The White House in mid-September cited concerns about fentanyl, forced labor and economic harm to US manufacturing in announcing it would propose rules removing de minimis eligibility from products subject to trade enforcement actions under Section 301 and Section 201 of the US Trade Act, and Section 232 of the Trade Expansion Act. But this regulatory process could take many months, and the administration has called on Congress to pass legislation this year—although there’s very limited time once Congress returns after the November election for a lame duck session.
The White House highlighted that 70% of Chinese textile and apparel imports are subject to Section 301 tariffs. The Biden administration is also pursuing rulemaking for new information collection requirements and “implementing new steps” to ensure that products meet consumer safety standards.
A Temu spokesperson said in a statement that its growth “isn’t dependent on the de minimis policy,” and that it is “open to and supportive of any policy adjustments made by legislators that align with consumer interests.” Both Temu and Shein have also said they do not allow forced labor.
A representative for Shein said import compliance is “a top priority” and pointed to previous remarks from the company’s executive vice chairman, Donald Tang, that called for “a more level, transparent playing field—one where all retailers play by the same rules, and where the rules are applied evenly and equally, regardless of where a company is based or ships from.”
Without de minimis access, companies shipping from China to the US could have to pay up to 25% tariffs, which could eat into their profits. But even if de minimis is narrowed specifically on imports from China, companies are likely to find other ways around the change, said Augustine Lo, of counsel at Dorsey & Whitney, where he advises companies on international trade. Businesses could produce and ship products from other low-cost jurisdictions like Vietnam, for example, he said.
Inspections Staffing
New limits on de minimis would set up an enforcement challenge without the right resources. The Department of Homeland Security, which would be tasked with oversight, has been increasingly focused on enforcing a 2-year-old law that assumes any product made with materials sourced from the Xinjiang region of China is linked to Uyghur forced labor unless a company can prove otherwise. The agency announced a new textile enforcement plan in April, including heightened Customs and Border Protection screening for packages claiming the de minimis exemption.
Those working on the front lines have aired their concerns about not having the resources to get the job done.
The US processed more than 1 billion de minimis shipments in fiscal year 2023 and four months into the next fiscal year CBP had already processed more than 500 million de minimis shipments.
“For federal law enforcement officers like me who work at the ports, it is incredibly frustrating to watch helplessly as millions of international packages that could contain fentanyl and other contraband evade inspection every day because of this language in the law,” said Heidi Tien, president of Chapter 155 of the National Treasury Employees Union, at a September press conference.
But “just because goods can enter tariff-free doesn’t mean Customs isn’t thinking about whether they contain contraband,” Lo, who was previously an enforcement attorney at CBP’s office of the chief counsel, said in an interview. “It’s an important distinction to make.”
“I don’t see how CBP would have the bandwidth,” said John Pickel, senior director of international supply chain policy at the National Foreign Trade Council, who spent a decade working at the agency.
He pointed to a September study from Oxford Economics that said implementing proposed de minimis legislation targeting Chinese imports would require billions in spending annually.
Those clamoring to make changes to de minimis are unfairly conflating a duty issue with a medley of other complex economic and import compliance challenges that won’t be solved if the law is narrowed, Pickel said.
Consumer Impact
Whatever action is ultimately taken on de minimis, it could change how consumers shop. Consumers and small businesses that rely on e-commerce would face higher costs if de minimis is reeled in, Pickel said.
A June study from professors at Yale and the University of California, Los Angeles says that eliminating de minimis altogether would disproportionately hurt lower-income and minority consumers, because they’re the shoppers that typically buy items worth less than $800 through this channel.
But lawmakers who have lobbied for limitations to de minimis point to the harms suffered by their constituents through fentanyl sent unchecked through de minimis. One of the Drug Enforcement Agency’s largest seizures of fentanyl chemicals in the US has been held up as a stark example: The agency in July announced that a Chinese national allegedly imported over 2,000 kilograms of fentanyl precursors through 100 separate de minimis shipments. Lawmakers have also pointed to instances of consumers unwittingly buying fentanyl-laced pills or other products that aren’t safe, like e-bike batteries that could explode.
For Sytz, speed is urgent in any reforms. “There’s many more of us that are just on the ledge there saying ‘how do we stay open, and what can the government do to help us stay open,’” he said.
Kim Glas, president and CEO of the National Council of Textile Organizations, urged the administration to expedite its plans to propose a de minimis fix. While de minimis isn’t solely responsible for the economic troubles the textile industry faces, closing off the exemption would make a huge difference to US manufacturers by further restricting imported products made with forced labor or falsely claiming to be from countries with which the US has free trade agreements, she said.
“De minimis is like radon: It’s something you can’t see or don’t feel like you’re seeing, but it’s extremely harmful,” she said. “There will always be a new company that comes forward to take advantages of the loophole, so that’s why we need to get rid of it.”
—With assistance from Andrew Satter
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