Now some British retailers are sounding mid flood of cheap Chinese goods. This worry comes on the heels of the recent closing of the “de minimis” tax loophole. This very close to century-old regulation allows imports worth less than $800 to enter the United States without duties. It’s no surprise, then, to see businesses such as Shein and Temu thriving. Additionally, the Trump administration’s tariffs on many of these products have severely limited their access to the U.S. market. As a consequence, British retailers fear that Chinese firms will divert their products to the U.K., flooding the markets with cheaper Chinese knock-offs.
It should be noted that President Trump already signed an executive order that eliminated the de minimis loophole aforementioned. This step aims to stem the flood of fast-growing, low-price Chinese online sellers taking advantage of American consumers. Thus, closing this loophole is a big deal. It has a deeply disruptive effect on the U.S. economic landscape, and with it, posing a significant danger for the U.K. market—that Chinese companies would simply be able figure out how to reroute their merchandise.
The British Retail Consortium (BRC) has recently urged the U.K. government to reconsider existing duty de minimis rules. BRC chief executive Helen Dickinson said the commitment was a good start but more action is needed urgently. Homegrown industries have expressed fears that cheaper products will simply be diverted from the U.S. to Europe.
“Retailers are very concerned about the risk of some lower quality goods being rerouted from the US to Europe as a result of the tariffs.” – Helen Dickinson, chief executive at the BRC.
This last concern, paired with the excessive costs of implementation, is voiced by Andrew Goodacre, CEO of the British Independent Retailers Association (BIRA). He highlighted the fact that billions of products enter these big marketplaces duty-free and completely evade VAT obligations annually. The prospect for Chinese firms to cut their teeth even further into the U.K. market is ominous for a lot of shopkeepers.
“For many months, we have been asking the government to review the current duty de-minimis. Billions of products every year are being sold through large marketplaces, entering the country duty-free and also avoiding any VAT obligations.” – Andrew Goodacre, CEO of BIRA.
And the Trump administration’s initial hikes of 145% on Chinese imports have already raised prices for businesses selling in the U.S. Consequently, many are now looking beyond to new markets. Richard Chamberlain, head of European consumer discretionary equity research at RBC, warned that “this is the biggest risk.” Shein and Temu will start to re-route their exports more through Europe.
“The likes of Shein and Temu, I guess there is a risk that they choose to direct exports over to Europe away from the U.S. and that pressures pricing, particularly for discount retailers and retailers at the lower end.” – Richard Chamberlain, head of European consumer discretionary equity research at RBC.
As Chinese e-tailers lose their price advantage from increased costs through new or increased import duties, they’ll likely have to increase their prices abroad. This complex interplay might put consumers hoping for low prices in a real Catch-22. Unfortunately, at the same time local retailers can be doing everything they can to compete.
Goodacre urged caution on how this change impacts traditional retail locations. As he noted, consumers could benefit from lower prices, but it would further stack the deck against the mom and pops who remain in business on main street and online rivals.
“Whilst customers will see lower prices, it will set an unfair marketplace leaving bricks and mortar stores at an even greater disadvantage than normal.” – Andrew Goodacre, CEO of BIRA.