SHEIN and Temu are “Outmaneuvering Regulators,” Key U.S. Commission Warns

By Elizabeth Brotherton-Bunch
Apr 17 2023 |
SHEIN accounted for 50% of all fast fashion sales in the United States by November 2022. Screenshot taken on April 17, 2023.

Bad behavior allowed the Chinese e-commerce platforms to dominate the fast fashion market, and policymakers must mount a response.

SHEIN and Temu know how to move fast — and right now, they’re leaving U.S. policymakers in the dust.

The U.S.-China Economic and Security Review Commission is out with a new issue brief examining the “data risks, sourcing violations, and trade loopholes” being utilized by the Chinese e-commerce giants to seize U.S. market share. Author Nicholas Kaufman dives into many alleged malpractices of the companies, including accusations of forced labor and other exploitative labor practices; health hazards; environmental damages; trade law violations; and copyright infringement.

But what’s striking about the brief is how clearly it outlines the speed to which SHEIN and Temu have dominated the market, and why a robust U.S. policy response can no longer wait.

SHEIN reshaped the fast fashion landscape by using extensive consumer data and artificial intelligence to “discern emerging fashion preferences and patterns” among consumers (which have led to concerns about data privacy). Meanwhile, SHEIN can then churn out merchandise “on a compressed timeline and at low cost,” as its has an exclusive supplier base, allowing it to bring products to market within five to seven days, compared to competitors who need three weeks or more. Products are then shipped directly to consumers, not sold in stores or via third party retailers.

Chinese e-commerce app Temu has dominated app downloads since it ran Super Bowl ads earlier this year. Screenshot taken April 17, 2023.

While SHEIN focuses on clothing, Temu sells a variety of merchandise. But it copied SHEIN’s overall model to growing success, launching quietly in the United States in fall 2022 only to make a splash via a Super Bowl ad. It quickly gained a huge following.

But both companies utilize “[n]umerous controversial practices” that “present a range of challenges to U.S. interests.” Many of these bad acts are also likely to be in direct violation of U.S. law, Kaufman argues:

Investigations in 2022 alleged that Shein failed to declare that it had sourced cotton from Xinjiang for its products, a violation of the Uyghur Forced Labor Prevention Act. These claims are exacerbated by further reports of illegal labor conditions among the suppliers of Chinese fast fashion firms as well as findings that Shein products pose health hazards and environmental risks. Shein and several other Chinese fast fashion firms have also faced a high volume of copyright infringement accusations and lawsuits for intellectual property (IP) rights violations.

Shein and similar companies present a range of challenges to U.S. interests, including difficulties monitoring supply sources and obstacles in ensuring fair market practices with U.S. competitors. These companies also exploit trade de minimis import exemptions, through which firms make shipments to the United States that are below an $800 value and are therefore not subject to import duties. Taken together, Shein and similar firms serve as a case study of Chinese e-commerce platforms outmaneuvering regulators to grow a dominant U.S. market presence.

The key takeaway here is that SHEIN and Temu didn’t just come up with a superior business model. Instead, they are exploiting a number of downright damaging practices to seize market share, some of which may be in direct violation of U.S. law.

It’s time for policymakers to do something about it. “The U.S. government should be vigilant in ensuring that these firms adhere to U.S. laws and regulations and are not granted unfair advantages over U.S. firms,” Kaufman argues, specifically recommending:

  • Strengthening trade enforcement: It’s increasingly clear that SHEIN and other Chinese direct-to-consumer brands are sending products to U.S. customers that are likely made with forced labor in Xinjiang. That is in direct violation of the Uyghur Forced Labor Prevention Act, which bars imports from Xinjiang unless companies can definitively prove their products aren’t tied to forced labor. But the direct-to-consumer model means these packages “are frequently not inspected,” Kaufman notes. That’s a loophole that needs closing. U.S. officials need better staffing and technological tools to inspect these goods.
  • Addressing the “de minimis” exemption: Speaking of loopholes, SHEIN and Temu have taken advantage of one that allows packages valued under $800 to enter the U.S. without paying tariffs. But these companies are shipping billions of dollars in product to the United States, and avoid the tariff by sending goods directly-to-consumers. This isn’t how the “de minimis” exemption was intended to work, and Congress should move to close this loophole.
  • Deterring intellectual property (IP) theft: U.S. companies and designers of all sizes have accused SHEIN and other Chinese brands of stealing IP, but there’s often little they can do to address it. Independent designers in particular have had their designs stolen but don’t have the resources to pursue legal remedies, Kaufman notes.

There is growing recognition among policymakers that more must be done to address the threat posed by SHEIN and Temu. Kaufman points out previous legislation to close the de minimis loophole, along with efforts to strengthen the monitoring of clothing sourcing and environmental impact. And just last week, a group of bipartisan lawmakers wrote to U.S. Customs officials about enforcement of the Uyghur Forced Labor Prevention Act, specifically citing their concern about SHEIN and Temu.

The problem is that recognition isn’t enough. SHEIN and Temu are moving fast — and a number of other predatory companies are looking to follow in their footsteps. It’s time for Congress and other key government officials to get to work on policy and enforcement efforts that address the malpractices that are a threat to U.S. interests.