The Current - Will Trump’s tariffs mean the end of cheap online fashion?

Episode Date: April 15, 2025

Clothing hauls from online stores like Temu and Shein could face a steep price hike next month, as U.S. President Donald Trump plans to remove the de minimis exemption, which excludes packages worth less than $800 US from tariffs. Retail analyst Doug Stephens explains what this rollback means for ultra-cheap fast fashion.

1942, Europe. Soldiers find a boy surviving alone in the woods. They make him a member of Hitler's army. But what no one would know for decades, he was Jewish. Could a story so unbelievable be true? I'm Dan Goldberg. I'm from CBC's personally, Toy Soldier. Available now wherever you get your podcasts. This is a CBC Podcast. Hi, it's Mark Kelly here. You might know me from my regular gig as co-host of the CBC's The Fifth Estate.

You'll be hearing more from me when I fill in for Matt as he crosses the country talking to Canadians about the election. I hope you tune in and please enjoy the current podcast. Knock off Uggs for less than 10 bucks. A sparkly prom dress for $31. A three pack of Lululemon look-alike leggings for $26.74. It's prices like those that drive people to ultra low cost Chinese e-commerce platforms

like Tmoo and Shein for their retail fix. It's time for Tmoo Haul. I just love this shop so much. It's just so cheap. One off the shoulder pink, I love New York bedazzled shirt. You're joking. Like this is the cutest thing ever. Delivery took about a week. It retails for $17, but I got it York bedazzled shirt. You're joking. Like, this is the cutest thing ever.

Delivery took about a week. It retails for $17, but I got it for $13.59. And the quality for the price is actually insane. $400 Sheena Hall, I need prayers yesterday. I literally found products that cost pennies. It's bedazzling. Timo has seen a huge rise in popularity, dominating the app charts in Canada and the US last year.

And part of that success is credited to a tax loophole that allowed China to ship low-cost items duty-free to the US. But US President Donald Trump has said he is closing that loophole as of May 2nd. That's on top of the broader US trade war with China. So what will all of this mean for price of fast fashion in the US and here in Canada? Doug Stevens is a retail analyst and the founder of Retail Profit. Good morning, Doug. Good morning. So tell us what exactly is this loophole that Donald Trump is ending?

Yes. So first and foremost, the de minimis exemption, and I'll explain that in a second, it was something that conversation began around this during the Biden administration. So Trump administration is really just picking up here where they left off. Essentially, when you ship something into the United States from China, if the value of that package or that shipment that you are sending is under $800, it has been excluded from any duties or tariffs up until this point. And that really has created a significant opening for businesses like Shien and Tmoo, which are really the fastest of fast fashion companies and they have really caught on like wildfire in the United States. So they've been shipping into the US basically without any duties or tariffs.

That is set to end on May 2nd. Chinese businesses generally speaking, not just Shien and Tmoo, but all Chinese businesses will now face a 90% tariff on shipments under $800. And that's up from an initial 30%. And the tariffs they say could rise to $150 per item in June. And again, this is a moving target, right? Every day, it seems these numbers change. But what we do know is that these goods are going to be tariff. Now, again, to be clear, it's not Sheehan and Tmoo that's paying this tariff, right? It's ultimately the end shopper, the end consumer. And this is certainly a growing and significant problem. In 2024, for example, there were over a billion packages

that used the exemption, and that's double the amount from 2022. So certainly something that the U.S. government is targeting along with other tariffs. Yeah, and then the U.S. imports, 97% of all clothing and shoes. So obviously this is gonna have a huge impact on the domestic market in the US

But how important was this this trade exemption to the rise of the those e-commerce giants like team who and she in? You know, I think it helped but I wouldn't necessarily say that it was the you know, the linchpin in their success American shoppers particularly lower-income American shoppers, particularly lower income consumers, have really been seeking them out. They've been seeking out Chinese companies generally that tend to have obviously extremely low production values, relatively high quality for the cost of the items that they're selling, and they also tend to be extremely good at logistics. They're very, very good at moving inventory from one place to another very, very effectively. So the de minimis exemption has certainly helped their growth, but I would argue that it's really the

power of their manufacturing and their supply chain management that has driven their success thus far. And as you mentioned, we're looking at a broader context here where we're looking at the tariffs with China, the trade war with China. And I know for the popularity of fast fashion here in Canada as well, a lot of our listeners will be saying, uh-oh, what's this mean for us? So what will the impact be for Canadian consumers? I know this is an American issue right now, but will there be a spillover effect here in Canada for Canadian consumers? I mean there could very well be. You know tariffs are, to use a COVID example, not

that we want to go back there, but I mean it really is sort of viral in the sense that when one country begins to close these kinds of trade loopholes, it does inspire other governments to also look at their situation. And certainly there are a lot of Tmoo and Shein and other companies that are being patronized by Canadian shoppers as well. I think one of the important things here though, is really, you know, what is the underlying motivation and who pays the price here? I mean, the Trump administration has been saying, you know, what is the underlying motivation and, and who pays the price here? I mean, the, the Trump administration has been saying, you know, in part that this is about bringing manufacturing jobs back to the United States. Um, but, but let's be

honest, uh, America lacks the, the infrastructure for this kind of manufacturing, they lack the workforce for this kind of manufacturing. They don't have the, even the discipline culturally for the kind of work that is being done by these Asian companies. The other motivation that has been cited is that this is all about fentanyl. It's about catching these packages. And even that is a bit of a pipe dream

in the sense that a grain of, a piece of fentanyl the size of a grain of rice is enough to kill someone. So are they really gonna go through a billion packages looking for something that small? So in practicality, I think this is really just about exercising a tax on low-income consumers to fund a tax cut for the rich and super-rich. Yeah, the critics in the United States who are looking at this, the removal of this or

ending this loophole, if you will, say it's going to hit small retailers who will carry some of these products and it will hit low-income consumers who really need these products because they are so price friendly. Do you think that they're the ones who are really going to be bearing the brunt of removing this loophole? Yeah, I certainly do. There's a whole cottage industry in the United States now that involves small businesses ordering goods from China and reselling those goods

to the American market. And this is going to hit them very squarely. In terms of its impact on low-income consumers, there's been some study around this. And some estimates are that this would cost Americans between 11 billion and 13 billion for what they're simply ordering. And again, yes, we're talking here about things like $5 t-shirts that are being ordered, right? So it's definitely not a luxury consumer that's ordering these things. It's a lower income demographic for sure. Sheehan and Timmu have built warehouses in the US and Canada so they can get orders to

North Americans more quickly. Sheehan, for example, has a distribution facility in Markham, Ontario. have built warehouses in the US and Canada so they can get orders to North Americans more quickly. Shane, for example, has a distribution facility in Markham, Ontario. How much can that help keep their prices down here in Canada? Well, what it helps is it gives them an advantage in the sense that because they are somewhat vertically integrated at that point from production through to logistics, they're not paying the tariff until they sell the product or the tariff is not due until the product is sold.

So when they're importing it, they're not paying the tariff. It's only when it's sold to an end consumer that that tariff gets paid. So that does provide some advantage, certainly. The CEO of ThredUp, which is a major online thrift and consignment platform, said the end of the de minimis loophole is good news for the secondhand clothing sector, as that rule is providing an unfair advantage to fast fashion retailers. Is there a possibility, is there an opportunity for slower, sustainable fashion here right now given that changing landscape?

Yeah, I think where we're going to see the market move to in a direction that it's frankly already moving is it's going to go further into resale. The resale market now is challenging the fast fashion market in terms of growth and is very close now to equaling the volume that fast fashion is delivering. And when I say resale, I'm talking about in the Canadian landscape outlets like Goodwill, Salvation Army, Value Village, places that are literally taking in and reselling pre-owned garments. It's an exploding market and it really crosses all demographics as well. It's not just seniors looking to save money on fixed incomes.

Young people now are heavily engaged in the resale market and among young consumers, about half of them say that when they're shopping for apparel, secondhand is now the first place that they're looking, which is really giving nightmares to outlets like H&M. Yeah, and I was curious about that. What is the impact sort of downstream to places like Xara or H&M?

Well, it's significant. As I say, the resale market now is growing at a rate that's about two and a half times faster than the overall global apparel market. So this is significant. In the US, for example, secondhand fashion was growing at about five times faster than the broader apparel market. So even these brands like Zara, like H&M,

are now getting into the resale market themselves. They're actually reselling some of their own products and trying to get a piece of this fast-moving resale market. Fast fashion indeed. Everything seems to be moving very, very quickly these days. Doug, great to talk to you. Thank you so much for your time this morning. Thank you, Mark. Doug Stevens is the founder of Retail Profit.