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Import tariff loophole helps online shopping site Temu offer low prices

DEBBIE ELLIOTT, HOST:

The online shopping site Temu has exploded in popularity in the past year and a half. And part of their promise is very low prices. But as Nick Fountain from our Planet Money podcast reports, part of how they offer those low prices is by using a loophole around import tariffs. It's called the de minimis loophole.

NICK FOUNTAIN, BYLINE: The de minimis loophole comes from back in the 1930s. And the idea back then was, say you went on a vacation to - I don't know - Paris. You shouldn't have to file customs paperwork or pay taxes if you decided to ship some little Eiffel Tower statues to all your Francophile friends at home.

EARL BLUMENAUER: De minimis means minimal.

FOUNTAIN: This is Congressman Earl Blumenauer, a Democrat from Oregon.

BLUMENAUER: It was just a few dollars. There was no controversy about it.

FOUNTAIN: Over time, the few dollars of stuff you could bring back into the U.S. tax free from vacation or for business became more than a few dollars. In 2015, Blumenauer was on the Ways and Means Committee, which deals with taxes and trade. And he voted to raise the dollar amount of tax-free stuff you could ship from $200 to $800, and then online retail kind of exploded. E-commerce operations - Shein, AliExpress, Wish, Temu - started shipping a ton of packages under the de minimis limit. It was a way to cut costs, to avoid tariffs.

BLUMENAUER: This completely blindsided Congress, blindsided me. We had - did not anticipate it at all. Maybe we should have, but we didn't.

FOUNTAIN: Blumenauer says this year, the U.S. is on track to receive a billion packages that come in through the de minimis loophole that aren't taxed and don't have customs slips saying what they are. And he says Customs and Border Protection, they are overwhelmed. Think about it. It is way easier to inspect a shipping container that says it's filled with 5,000 Eiffel Tower statues than it is to inspect 5,000 individual packages that don't have to say what's in them at all. This means illegal items are slipping through the cracks, including, according to Blumenauer, knockoffs, unsafe items and also worse things - goods made by forced labor, even chemicals used to make fentanyl.

Now, Blumenauer says most of this stuff is coming in through China, and so he has introduced a bill that would close the de minimis loophole for packages coming from China specifically. If it becomes law, sellers like Temu would have to declare what's in every package and, importantly, pay any applicable tariffs. Blumenauer says this would even the playing field for U.S. manufacturers and retailers, and it would make it easier for customs to keep tabs on illegal things.

So what's stopping Temu from, say, putting a bunch of warehouses just across the border in Toronto and Tijuana and taking advantage of the loophole there?

BLUMENAUER: I'm not saying people can't cheat. I'm saying this will make it much harder.

FOUNTAIN: By the way, a spokesperson for Temu said they welcome any legislation that aligns with consumer interests and that their growth isn't dependent on the de minimis policy. Now, Blumenauer is not alone. Republican Marco Rubio has sponsored a similar bill in the Senate, and if their efforts succeed, you can say goodbye to tariff-free trinkets from China.

Nick Fountain, NPR News.

(SOUNDBITE OF L'ECLAIR "DALLAS")

ELLIOTT: You can hear Nick's full story about Temu in the latest episode of Planet Money. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Nick Fountain produces and reports for Planet Money. Since he joined the team in 2015, he's reported stories on pears, black pepper, ice cream, chicken, and hot dogs (twice). Come to think of it, he reports on food a whole lot. But he's also driven the world's longest yard sale, uncovered the secretive group that controls international mail, and told the story of a crazy patent scheme that involved an acting Attorney General.
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