The U.S. tax loophole that made Shein and Temu rich is changing. What will happen to the brands now?

For years, Shein and Temu used a U.S. tax loophole to keep their costs low and send items to the country ultra-quickly.

Not anymore.

U.S. President Donald Trump signed an executive order on April 2 to end the de minimis exemption — a rule that allows small packages worth less than $800 US to enter the U.S. tax free — for packages from China and Hong Kong, effective Friday.

The de minimis rule exists to prevent customs agents from spending too much time processing small packages that don't yield much money for the government in import taxes. But now, the Trump administration is reversing the rule for imports from China, saying the exemption has allowed illegal drugs to come into the country. 

Companies like Shein and Temu, both of which were founded in China, have used the rule to their advantage, shipping orders to the U.S. as individual packages rather than bringing shipping crates full of items in, storing them in warehouses and distributing to consumers from there, as most retailers do.

The exemption is a big part of what helped keep Shein and Temu's prices so low, according to Samuel Roscoe, a lecturer in supply chain and operations management at the University of British Columbia's business school.

"I would expect them to take a significant hit, but still trying to compete in the United States," Roscoe said.

But while price increases, supply chain factors and a possible slowing of packages at the border will be obstacles, experts say the hits won't take out the companies completely, nor the fast fashion model they accelerated.

As of Friday, small packages under $800 US in value entering the U.S. from China will be subject to duties of 120 per cent, or a $100 flat rate fee. The flat rate is set to rise to $200 as of June 1. 

Assuming the company passed on most or all of that duty to consumers, the cost of items on Shein and Temu's sites could more than double for Americans.

Both Shein and Temu have already announced price increases due to tariffs, which came into effect last week. An analysis by Bloomberg found that products on Shein's U.S.-facing site had increased by as much as 377 per cent in some cases, and by an average of eight per cent for women's clothing.

Temu has also added "import charges" to items on their site of about 145 per cent, according to CNBC. Its analysis shows that an $18.47 US sundress will now cost $44.68 after import charges, for example.

Canadians aren't likely to see any price increases today, Roscoe says, given there are no changes coming to import rules or duties between our country and China. (There is a similar de minimis exemption in Canada for packages under $20, $40 or $150 in value, depending on where the package is being shipped from.)

At the time of writing, prices on Shein and Temu's Canadian sites appeared to be unchanged.