By Sabrina Escobar

Chinese e-commerce stocks were in the red after President Donald Trump imposed additional tariffs on Chinese imports and moved to close a loophole that helped some online retailers avoid tariffs.

Over the weekend, the Trump administration slapped an additional 10% tariff on products imported from China, accompanying orders to impose 25% tariffs on Mexico and Canada.

All three orders also halted the so-called de minimis provision for packages sent from the three countries. The provision, originally meant to simplify customs procedures for small businesses and consumers, allowed packages valued at less than $800 to enter the U.S. tariff-free. In recent years, legislators have argued it has become a loophole that allows some e-commerce companies to evade tariffs and has made it easier to smuggle in illicit drugs.

Trump's orders make it clear that the new tariffs now apply to these lower-value packages as well. Whether de minimis is suspended for countries outside of the three outlined in the order wasn't immediately clear, experts say.

Yet the directive is proof that the Trump administration aims to tackle the issue head on. There are several bills snaking their way through Congress aimed at overhauling de minimis, but congressional action would take much longer to pass and implement.

Markets slid Monday morning given investor expectations that the resulting trade war would rock the global economy, though they regained significant ground after Trump and Mexican President Claudia Sheinbaum Pardo said the U.S. is pausing its tariffs for a month. Mexico will deploy 10,000 soldiers to the border to fight flows of illegal drugs, particularly fentanyl, into the U.S.

In mid morning, the S&P 500 was down 0.7%, while the Nasdaq slid 0.9%. The SPDR S&P Retail ETF was down 1.1% on fears that retailers -- some of the country's biggest importers of consumer goods -- will struggle to navigate the tariffs.

But stocks of some Chinese e-commerce companies were taking it especially hard, given that the bulk of the products they sell are from China. Temu's parent company, PDD Holdings, was 5.1% lower, and JD.com and Tencent Holdings were down 0.3% and 0.4%, respectively.

"This will heavily and adversely impact many of the online retailers, and in particular those exporting from China," wrote Richard de Chazal, macro analyst at William Blair.

The order could be especially troubling for companies like Temu and privately owned Shein, whose businesses have thrived partially thanks to the de minimis provision. Both companies often ship products to U.S. consumers directly from Chinese warehouses in small packages that bypass customs.

In 2023, de minimis packages rose to over one billion, according to Customs and Border Protection. Companies like Temu and Shein likely accounted for nearly a third of those shipments, according to a report published by the House Select Committee on the Chinese Communist Party.

Representatives for Shein and Temu didn't immediately respond to requests for comment.

"We view U.S. President Donald Trump's latest executive orders to impose 10% tariffs on products imported from China and the proposal to remove the 'de minimis' exemption as a negative read-through to PDD's Temu business in the U.S.," wrote Citi analyst Alicia Yap.

PDD's share price has somewhat factored in the potential tariff and de minimis risk, she added, yet the move to close the loophole came sooner than expected. That means it may be too early for any intended mitigation strategies to truly pay off. Temu and Shein in recent months have been looking to open warehouses outside of China and integrate local sellers into their marketplaces.

That said, the companies may get some respite from the knowledge that many of their competitors -- including American ones -- won't be exempt from the de minimis and tariff blowback, either. Amazon stock was down 0.7% Monday morning.

Indeed, a "significant portion" of Amazon.com's sellers are Chinese, meaning their products will also be subject to higher levies. And just last fall, the company launched its own Shein-like platform, called Amazon Haul, which ships low-cost products from a warehouse in China directly to consumers using de minimis shipments. At the time, a spokeswoman told Barron's the company would adapt its process as necessary if import rules changed to remain compliant with customs requirements.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 03, 2025 11:12 ET (16:12 GMT)

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