What will it mean for the China-based importer’s business model?
Are you familiar with Shein, the new king of the fast fashion industry? There’s a likely reason all the trendy clothes this online retailer sells are cheap and immediate, and it’s not a good one. We detailed the unfair labor allegations facing the company in a blog post this summer, which you can read here.
That blog post hasn’t slowed down Shein’s rise. But even as this private Chinese company valued at around $100 billion gets ready for a planned IPO in 2024, it’s still got some housekeeping to do. And by housekeeping, do I mean addressing the allegations of labor abuses in its business model beyond what amounts to a marketing campaign? No, I mean figuring out a way to get its goods to its voracious American consumers more quickly.
Well, it’s figured it out: The Wall Street Journal reports the company has announced plans to open a handful of enormous warehouses across the U.S. in the next few years. You can already get a job moving its questionably made garments outside Indianapolis at a 1 million square foot facility; soon there will be similar distribution centers in southern California and another in the northeastern United States, location TBA.
This is interesting when you consider the implications for its business model. For one, it’s been able to get products to the American market on the extremely cheap in part by exploiting the “de minimis” U.S. trade rule that allows it to pay next to nothing on import tariffs. Fortune explains the “parcels Shein sends via air cargo can list individual customers or third party customs brokers as the ‘importer,’ and the warehouse or logistics firm that last touched the parcel—rather than Shein itself—as the ‘seller,’” which makes it very hard for U.S. customs officials to apply duties correctly.
But running more of its imported goods through its own warehouses will likely mean those imports, brought over in bulk, will face more tariffs, as this trade watcher on Twitter points out. And it will also bring the company into more contact with the Uyghur Forced Labor Prevention Act (UFLPA), a U.S. law that went into effect this summer, which is essentially a ban on imports made even in part in the Chinese region of Xinjiang, where evidence suggests the government is abusing a Muslim ethnic group to the point of cultural genocide. A lot of China’s apparel supply chain runs through Xinjiang, which is the source of a ton of cotton.
So what does it say about the de minimis rule and the UFLPA if a company like Shein is willing to risk exposure to them by establishing their own branded warehouses in the United States?
Well, in the case of the de minimis rule its reasoning could be that this loophole could soon be closed. A proposal to do that, sponsored by Rep. Earl Blumenauer (D-OR), was attached to what became the CHIPS Act but was left out of the final legislation. There are rumblings that Congress could take this and other proposals to tighten U.S. trade enforcement up before the end of the year.
And as for the UFLPA, Shein’s reasoning could be that it can just continue to get away with selling goods in the U.S. despite any supply chain attachments to the Xinjiang region. The law has been in place since June, but enforcement questions remain. Republican members of the House have gone on record inquiring about U.S. Customs’ efforts at enforcement, and (according to Chinese government data) clothing exports from the region to the U.S. surged after the ban went into effect.
This might be from a lack of enforcement, as the concerns of those House lawmakers suggest. Or it could be because the UFLPA as its written is having unintended consequences. Writes this trade lawyer on his Substack:
The bottom line is that there is therefore no indication (Customs and Border Patrol) has been successful in stopping goods produced wholly or in part in Xinjiang or by the UFLPA Listed Entity. Every importer summoning the wherewithal to prepare a submission in response to a detention has argued that CBP got it wrong. Goods detained and voluntarily re-exported may or may not have been subject to the law, no one will ever know. And no importer has yet availed itself of the pathway built by the law, meaning no importer has conceded that it has ever actually imported goods with a supply chain link to Xinjiang or forced Uyghur labor.
Man! There’s a lot to read in these tea leaves. But remember this: Warehouses in the U.S. or not, there’s a lot about Shein and fast fashion that suggests you should do your shopping elsewhere. So please buy American instead.