Aurelia Butler

NEW YORK (Reuters) – The meteoric rise of shopping platforms selling Chinese-made goods, including Shein and Temu, has been fueled by a decades-old loophole that allows cheap products like $10 dresses to land in U.S. mailboxes tariff-free.This happens thanks to a “de minimis” rule exempting packages valued at $800 or less from tariffs as long as they’re addressed and shipped to individuals. The exemption is open to all retailers but is most heavily used by Shein and PDD Holdings’ Temu, and potentially by TikTok’s new e-commerce business.A June report published by a House of Representatives committee estimated that Shein and Temu likely account for more than 30% of all de minimis shipments into the U.S.Its publication reflected growing congressional scrutiny of the provision, which critics say is allowing the companies to evade higher tariffs on Chinese goods and customs inspections under a law banning products made from forced labor. Shein has become an especially high-profile target as it weighs a U.S. initial public offering. The China-founded company told Reuters it has been compliant with U.S. tax and customs laws since entering the market in 2012. Its Global Head of Strategy, Peter Pernot-Day, told Reuters that Shein is not dependent on the exemption for its success. Instead, he attributed it to the company’s practice of monitoring online trends and ordering small initial batches of apparel from its manufacturers. They only increase production if the styles sell well, allowing it to avoid expensive excess inventory, Pernot-Day said.Shein sent a letter to the American Apparel and Footwear Association (AAFA) in late July calling for de minimis reform, but did not make specific policy recommendations. Its U.S. Senate disclosures show it has lobbied lawmakers on “trade and tax related matters” in recent quarters.Temu, which launched in the U.S. in 2022, did not respond to a request for comment. TikTok, owned by Beijing-based ByteDance, also did not immediately respond to a request for comment.Data from U.S. Customs and Border Protection shows that de minimis shipments into the U.S. rose to 685.5 million in 2022, up nearly 67% over 2018. That equals roughly two to three million packages a day, Robert Silvers, Under Secretary for Policy at the Department of Homeland Security, told lawmakers in July. A bipartisan group of U.S. lawmakers in June introduced bills that would ban de minimis shipments from China upon enactment.The fact that Chinese goods and China-founded companies are benefiting from de minimis has frustrated some lawmakers. Republican Representative Jason Smith, chairman of the House Ways and Means Committee, described the provision as a “free trade agreement for China” during a May hearing.UNFAIR ADVANTAGE?Rival U.S. retailers also have grown increasingly concerned about the exemption as Shein and Temu have gained market share. Senate records show that more than a dozen retailers have lobbied on the exemption since 2018, from Tapestry (NYSE:TPR), the parent company of Coach , to Mercari, a Japanese e-commerce marketplace.Some retailers and industry groups, including Columbia Sportswear (NASDAQ:COLM) and the AAFA, support maintaining the $800 threshold while allowing retailers sending merchandise from distribution centers in U.S. foreign trade zones to also use the exemption. Others would like to see the cap lowered or eliminated entirely, while some who regularly use the provision don’t want to see it changed at all.The House committee report released in June said H&M and Gap respectively paid $205 million and $700 million in import duties in 2022, while Shein and Temu, whose packages ship directly to customers under de minimis, paid nothing.Steve Story, whose firm, Apex Logistics International, helps retailers and other companies ship goods under de minimis, said the exemption is available to everyone. “If you don’t want to save money and take advantage of this e-commerce paradigm shift, then you’re losing out,” he said.DUTY FREETraditional retailers typically import merchandise in bulk by ocean freight, paying duties once the goods arrive at port, then move it to warehouses and ship it to stores or individuals who place online orders. In the U.S., the small shipments covered by de minimis aren’t subject to duties, and often sidestep customs inspections, too. They’re typically handed off to UPS, FedEx (NYSE:FDX) or other carriers for delivery. Goods can also be shipped over the ocean from China and arrive in bulk at bonded warehouses in Mexico or Canada. Once a customer places an online order, the products are individually packaged and driven into the U.S. duty-free. The de minimis rule has been in place since 1938 and was originally intended for low-value gifts mailed from abroad and souvenirs brought back by Americans traveling overseas. In 2015, Congress raised the cap on de minimis shipments to $800 from $200, making the U.S. threshold one of the highest in the world.Around the same time, there was an “explosion in e-commerce” that led to more packages shipped under the exemption, according to Erik Autor, a trade attorney with Barlow & Company. More

Lower iPad and other hardware sales contrasted sharply with expanding revenues from digital services in Apple’s latest results.The number of paying subscribers for services including iCloud, Apple Music and the App Store crossed 1bn for the first time and sales reached a record high of $21.2bn. But sales of iPhones, iPads and Mac computers were lower than the same quarter a year ago, dragging down overall revenues for the third consecutive quarter. Revenues for the three months to the end of June were $81.8bn, down from $83bn a year ago. The company indicated revenues for the current quarter could also fall, sending Apple’s share price down 2.5 per cent in after-market trading.“There remains some hardware headwinds, which may give us a read on the overall consumer right now,” said David Wagner, portfolio manager at Aptus Capital Advisors.The record performance of Apple’s services business was echoed in the results of Amazon, which also published its latest quarterly results after the market closed yesterday. Signs that the slowdown in cloud computing had bottomed boosted revenues and profits at the online retailer. Moreover, large lay-offs earlier this year helped to lift profit margins. The better than expected results sent Amazon shares 9 per cent higher in after-market trading. More on Amazon and Apple: Whether you prefer to own Apple or Amazon stock will reflect on what you think about the future of technology, argues Robert Armstrong.Here’s what else I’m keeping tabs on today:Economic data: Economists expect the US jobs market to add the fewest number of openings since December 2020 after almost 18 months of rising interest rates. Here’s what to expect from today’s employment figures.Donald Trump speech: The former president is scheduled to make his first public speech since being indicted for a third time. Trump will speak at an event hosted by the Alabama Republican Party in Montgomery later today. Saudi-led Ukraine talks: Dozens of countries will begin talks at a conference hosted by the kingdom to sway developing countries to support Kyiv’s demands for Russia to withdraw troops.Results: Warren Buffett’s Berkshire Hathaway will report its latest results tomorrow.How well did you keep up with the news this week? Take our quiz.Five more top stories1. Donald Trump called the latest criminal charges against him the “persecution of a political opponent” after his Washington court appearance. Judge Moxila Upadhyaya set the first hearing in the latest case for August 28 as one of the former president’s lawyers said he would ask the court to reject the prosecutors’ request for a speedy trial. Read more on yesterday’s court proceedings.Opinion: The indictment is welcome news for America’s democracy and its democratic allies, write Donald Ayer, US deputy attorney-general under George HW Bush, and Norman Eisen, special counsel in the Barack Obama White House.2. Hedge funds have lost more than $6bn this year betting against cruise lines and hotels. Royal Caribbean and Carnival are two of the 10 most heavily shorted companies in the S&P 500 but have confounded short sellers’ expectations by more than doubling in value so far this year. Read more on the bet that has gone wrong for hedge fund investors. 3. The chair of the House China committee has written to Joe Biden and urged him to widen forthcoming limits on investments in China to cover stocks and bonds. The president is expected to sign a new executive order next week restricting investments linked to China’s military. Read more on Mike Gallagher’s letter. More on US-China tensions: Two US Navy sailors have been arrested and charged with passing sensitive military information to China in exchange for thousands of dollars in payments.4. KKR is in advanced talks to buy US book publisher Simon & Schuster from Paramount for more than $1.6bn, according to people familiar with the matter. Last year regulators blocked a proposed merger between Penguin Random House and Simon & Schuster on competition grounds. Read more on the latest attempt to sell Simon & Schuster.4. Chase Coleman’s Tiger Global has built a big stake in private equity group Apollo Global as the hedge fund looks beyond the technology investments that have been its mainstay in recent years in a hunt for better returns. The investment was revealed in a mid-year letter sent to investors and seen by the Financial Times. Read more on Tiger’s new investment strategy.Diageo vs Diddy

Sean Combs, also known as Diddy, is locked in a war of words with Diageo over the marketing of spirits brands DeLeón and Cîroc © FT montage/AP

When Diageo entered into a profit-sharing arrangement with US rapper and entrepreneur Sean Combs, also known as Diddy, in 2007, celebrity partnerships were still rare. Sixteen years later the relationship has descended into acrimony, with the musician and conglomerate poised to enter a legal battle over the terms of their partnership. Read more on the bitter dispute. We’re also reading . . . Gillian Tett: Fitch’s downgrade of US government debt reveals America is being judged less like a developed country — and more as an emerging market.Productivity lessons: Here’s the inconvenient truth: you’ll never clear all your tasks, so just do your best with the time you have, writes Tim Harford.Chart of the day

US Treasury yields yesterday climbed to a nine-month high, continuing their ascent following an announcement from the government that it would increase its borrowing in the coming months. Hedge fund manager Bill Ackman added to the pressure on long-dated US government bonds after saying he was shorting US 30-year Treasuries. Read more on the latest moves in the US government bond market. Take a break from the newsHere are our six films to watch this week, including Paris Memories, a drama by Alice Winocour about recovering erased memories following the trauma of the terrorist attacks in and around the Bataclan concert hall in November 2015.

Virginie Efira in ‘Paris Memories’ © Stephanie Branchu

Additional contributions by Tee Zhuo and Benjamin Wilhelm More

SHANGHAI/SINGAPORE (Reuters) -China’s consumers and companies are tying up trillions of yuan in longer-dated deposits with banks, effectively taking a vast pool of money out of circulation and risking the kind of liquidity trap that hobbled Japan’s economy in the 1990s.Latest official data shows financial institutions issued 5.5 trillion yuan ($766.12 billion) worth of long-term deposits known as certificates of deposit (CD) in the first quarter of this year – the largest such quarterly issuance since the product was introduced in 2015.Domestic investors have rushed into these CDs over the past year in a desperate search for returns as they withdraw from real estate and the stock market, both traditional investment options now looking treacherous because of regulatory and economic problems.Companies have joined the scramble this year, adding to the drag on China’s economy as it effectively means both businesses and households are hoarding cash rather than investing it, despite lower interest rates – a classic liquidity trap that plagued Japan for years beginning in the 1990s.”Based on Japan’s experience in the 1990s, there is the risk that China is entering a liquidity trap due to the risks of balance-sheet recession,” said Natixis’s chief economist for Asia Pacific Alicia Garcia Herrero. Analysts see the same lack of confidence in today’s Chinese households and companies that Japan grappled with in the 1990s. But in China’s case there is a key difference; there is no deflationary threat yet, nor have banks switched off lending.Fan Gang, a prominent economist and former adviser to the central bank, told a forum in June that China faces a liquidity trap but not a Japan-style deflationary morass. “It’s like money falling into a black hole, and that’s what we’re in right now, demand from companies and households is not vibrant.” China’s policymakers have cut rates and encouraged banks to lend more in efforts to revive economic growth after the pandemic. Yet about 180 domestic A-share companies say in their stock filings that they have invested in CDs this year. A banker handling retail accounts at a state lender said there was higher than usual demand for CDs, “because who knows if the broad environment could get worse?” she said. While some clients had invested in cash products, which can be redeemed at any time for urgent use, most had signed up for 3-year CDs with penalties for early withdrawal, which means the money will be locked away for a while, she said.The rush for the safety of CDs and other safer wealth management products undermines policymakers’ drive to boost demand and consumption through tax cuts and the relatively restrained property support measures. Byron Gill, manager of the Pacific Opportunities Fund at U.S.-based Indus Capital, also draws parallels with Japan’s balance sheet recession during the country’s ‘lost decade’.”What we can say in the case of China is that a sub-segment of the economy, the property sector, is absolutely in the midst of a balance sheet recession,” Gill says. “And to the extent that property makes up a quarter of Chinese economic output, it’s not a small deal.”SAVINGS GLUTChina has a long history of savings rates being high – according to World Bank estimates the savings rate to GDP is the highest among large economies. Total household deposits were at a record 132.2 trillion yuan ($18.41 trillion), equivalent to more than 30 months of retail sales, at the end of June, and up by 12 trillion yuan in the first half of this year – the biggest increase in a decade. Certificates of deposit (CDs) are issued by banks and considered one of the safest savings options, with yields of 3-year CDS usually hovering around 3%, higher than those on bank demand deposits. “With few signs of a recovery in the property sector and an uncertain job outlook, the accumulation of household deposits suggests widespread pessimism among households,” said Betty Wang, senior China economist at ANZ.Eastroc Beverage, a Chinese energy drink maker, said in a filing on July 18 that it had invested in 21-month CDs at China Merchants Bank and in Bank of Ningbo’s 17-month CDs. It said such investments were to aimed at enhancing the efficiency of capital utilization and increasing the company’s revenue.A retail investor in Shanghai, who only wants to go by her last name Wu, said she invested in 3-years CDs. “I don’t see a lot of investment opportunities now. My stock mutual fund products are still down about 20%,” Wu said.China’s 220 million retail stock investors, equivalent to Brazil’s population and the biggest drivers of daily moves, have kept to the sidelines this year. The benchmark Shanghai Composite index and the blue-chip CSI 300 Index are far behind the pace of neighbouring Japanese stock market, which has risen nearly 25% so far this year.A Shanghai-based retail investor in his 50s, who wished to go as John, says he put the majority of his savings in CDs earlier this year. “I wouldn’t pour money into the stock market any time before I see a clear rising trend,” he said.($1 = 7.1890 Chinese yuan) More

U.S. markets are reeling this week from surging funding needs, the loss of the government’s prized triple-A credit rating and a still-hot labour market. Friday’s crucial jobs data will provide another hurdle. Longer-dated U.S. Treasuries have taken a beating this week, with 10-year and 30-year yields surging over 20 basis points, heading for their biggest weekly jump since late December. In stark focus is the fiscal position of the world’s biggest economy. Markets struggled to digest news that the Treasury expects to borrow $1.007 trillion in the third quarter, a record amount for that period and up $274 billion from May’s estimate.Fitch issued its surprise downgrade of the U.S. credit rating on Tuesday just as markets were looking ahead to a Treasury announcement setting the sizes of U.S. debt sales to reflect those surging borrowing needs. That means the U.S. no longer holds a prized AAA rating on average. Fitch cited the deterioration in the United States’ fiscal metrics as a reason for the downgrade. The financial community has been scrambling to understand what that might mean for the Treasury debt that underpins the global financial system as an unrivalled safe-haven asset. Data this week is still pointing to a hot labour market, which has given yields an extra push higher. U.S. job openings, though falling, remain at levels consistent with a tight labour market, the ADP’s national employment report showed strong private hiring last month that beat expectations and layoffs dropped to an 11-month low in July. On Friday, if economists polled by Reuters are right, non-farm payrolls will have risen by 200,000 in July — pretty much unchanged from June. The unemployment rate should also hold steady at 3.6%, while average earnings growth should slow. Citi for example said earlier in this week that the 290,000 upside surprise it expects along with higher-than-expected earnings could push yields even higher by raising the probability of a further rate hike from the Fed, or rates remaining higher for longer. Traders are currently betting the Fed, which hiked rates to 5.25%-5.50% last week, is done for now and will deliver a first cut by May, but don’t forget Fed boss Jerome Powell left his options open in July.But ADP is often a misleading indicator. Just last month, another stronger-than-expected ADP report sent yields surging, only to be followed by a weaker-than-expected nonfarm payrolls report, stoking yield swings. So, expect more volatility to dust off a week that turned out more eventful than anyone likely wanted for mid-summer. Key developments that should provide more direction to U.S. markets later on Friday: * U.S. July non-farm payrolls* Canada July employment data * Goodyear Tire earnings More

AP Møller-Maersk has warned that a contraction in global trade will prove longer and deeper than the container shipping giant had feared, as companies cut their inventories in the face of recession risks in Europe and the US.The Danish shipping and logistics group said on Friday that global container demand — regarded as a proxy for global trade — would fall by 1 per cent to 4 per cent this year, versus a previous forecast of plus 0.5 per cent to minus 2.5 per cent.Container shipping, an industry whose fortunes are tied to globalisation, enjoyed a historic boom from 2020 to 2022 as retail and industrial companies struggled to restock and respond to pent-up demand unleashed after the lifting of coronavirus lockdowns.But container lines are having a much harder year as their customers cut back on stock levels and the industry braces for the arrival of a huge number of new ships ordered during the upturn.Nevertheless, a better than expected first-half performance was enough for Maersk to lift its annual earnings forecast. The group warned that the rest of 2023 would be tougher.Vincent Clerc, Maersk’s new chief executive, told the Financial Times it was a “bittersweet” feeling as a robust first half was balanced against concerns about the future, particularly the number of new ships being delivered in the next 12-24 months.“We are in the midst of the biggest correction after the Covid boom of 2021 and 2022,” he said. “It’s always difficult to handle such a radical change in demand . . . There is quite a significant order book that will be phased in. This is likely to create a difficult trading outlook. We expect a continued correction on earnings.”In the second quarter, Maersk’s revenues fell 40 per cent year on year to $13bn, while its earnings before interest, tax, depreciation and amortisation tumbled 72 per cent to $2.9bn, albeit ahead of analysts’ expectations of $2.4bn.Maersk lifted its ebitda forecast for the full year from $8bn-$11bn to $9.5bn-$11bn. At the peak of the boom in 2022, Maersk made $37bn in ebitda.During the boom, Maersk was dethroned as the world’s largest container line by Mediterranean Shipping Company as the two companies have pursued widely different strategies.The Danish group has sought to use windfall profits from the past few years to bulk up its land-based logistics business in an effort to offset more volatile earnings from its shipping arm. MSC, meanwhile, has ploughed much of its money into new vessels.

Clerc acknowledged that Maersk’s logistics business had been “too optimistic” in its forecast after suffering its first quarterly drop in revenues for several years. The business “needed to get back to cost discipline” by cutting capacity and jobs in the coming quarters, he said.On the ability of the container shipping industry to absorb all the new ships arriving, Clerc said it would be “a bumpy road ahead”, but he still expected the industry to be more rational than it had been in the past.Maersk estimated global container demand fell by 4-6.5 per cent in the second quarter compared with a year earlier as companies worked through existing inventories, an economic slowdown in China and recession fears in the west. More