How US Loopholes Boosted China’s Export Power

Nearly a decade ago, Congress increased the import threshold from $200 to $800, facilitating access to the American consumer market.

In response, Chinese companies rapidly entered this sphere. Initially on platforms like eBay and Amazon, and later on apps like Shein and Temu, exporters leveraged China’s extensive manufacturing capabilities to funnel products directly into the US market.

This change in policy in 2016 significantly transformed the economic relationship between the two nations.

For decades, the US has been receiving goods from Chinese factories, benefiting from their manufacturing efficiency. The newly expanded, tariff-free loophole has made American consumers increasingly addicted to purchasing inexpensive exercise clothes and home gadgets online. In turn, millions of Chinese workers have found employment in factories catering to the e-commerce market. The influence extends to major players like Amazon and Walmart, as well as platforms such as Shane, Temu, and TikTok.

This surge in transactions has been remarkable. Last year, approximately 4 million packages arrived daily in the United States without customs inspections or fees.

However, changes were implemented on Friday, affecting trade between the two largest economies. Most packages from mainland China and Hong Kong are now subject to customs duties, even if valued under $800.

People in both nations are already noticing the shift. American consumers are encountering higher prices at checkout, while Chinese exporters are actively seeking new markets beyond the US.

Several factories in southern China, where much of the manufacturing hub resides, have been closing since early April, raising concerns about job losses.

Zhang Yikui, a worker at a factory in Guangzhou producing clothing for Amazon, mentioned that his factory’s output has dropped from 100,000 pieces monthly to around 60,000. He and about 40 colleagues were seen sewing denim dresses amid piles of Shane bags.

Zhang stated he is looking for new buyers: “People in other countries still need clothing. The US doesn’t manufacture anything like this.”

Even lesser-known Chinese manufacturers have successfully entered the American market. Eddie Chang, an e-commerce consultant in Hong Kong, previously managed Walmart’s China e-commerce operations.

“Changes have happened rapidly over the past few months,” he remarked.

Trade tensions present significant challenges to China’s economic growth, which heavily relies on exports. In April, President Trump raised tariffs to 145% on over half of China’s exports to the US, and recent official data indicates that new export orders have plummeted to their lowest since 2022.

Ting Lu, chief economist at Nomura, reported this week that nearly 6 million jobs in China could be lost in the short term due to tariffs, with potential losses rising to 16 million in the longer term.

The Chinese government is struggling to move away from its longstanding dependence on the real estate sector, which has seen a sharp price decline and has adversely affected consumer spending.

China’s cross-border e-commerce landscape has a multitude of factories that are vital to its success, making it one of the few sectors showing signs of growth.

Established over a decade ago, the emergence of platforms like Amazon and Shein coincided with China’s government efforts to expand opportunities in overseas markets for small and medium-sized enterprises.

These apps serve as channels for a diverse array of products produced in China, empowering local companies to ship packages directly to consumers and efficiently manage inventory. This accessibility has helped even small factories become global players, as noted by Harvard University professor Moira Weigel, who is researching the online marketplace.

This context facilitated Congress’s decision to raise the tax-free limit to $800, promoting access to affordable international goods for consumers and small businesses, while other nations sought to boost US exports. However, the United States remains an anomaly among significant trading partners, with China’s tax-free import threshold set at just $7.

For nearly a century, federal law exempted inexpensive goods from import taxes. The threshold was raised from $5 in 1978 to $200 in 1993.

The increase to $800 unlocked vast potential, positioning China as the largest exporter under De Minimis rules. In 2018, Chinese firms sent out packages worth about $5 billion, averaging $54 each, which skyrocketed to $66 billion by 2023, according to Congressional Research Services data.

The ongoing trade tensions and the termination of the US tax-free policy threaten to disrupt this progress.

Han Dong Hwan, founder of China’s Labor Bulletin, which monitors protests regarding factory closures, warned that the impact of tariffs could be “far worse” than the job losses experienced during the pandemic.

Some factories are turning to e-commerce platforms in Europe and Southeast Asia to find new markets for their products, while Chinese e-commerce consultants offer guidance on selling items on eBay in Japan or Amazon in Brazil.

Other Chinese sellers have begun stockpiling US goods, even acquiring warehouse space from Amazon and Walmart.

In response, the Chinese government has not only imposed high tariffs on US imports but also encouraged local consumers to buy domestically produced goods. However, as Qiu Dongxiao, dean of economics at Linnan University in Hong Kong, points out, if unemployment rises, consumer spending may diminish.

“Even those currently employed are unsure about their job security, making them hesitant to spend money,” Qiu states.

siyi Zhao Reports of contributions.