The fate of Guanyun County, a rural community that has become a hub for China's online lingerie trade, hangs in the balance as the US considers eliminating a key tariff exemption. Dubbed ‘Victoria's Secret Town’, Guanyun's rapid growth has been due to the de minimis rule, which allows packages valued under $800 to enter the US duty-free. This rule has been a boon for Chinese e-commerce giants like Shein and Temu, which rely heavily on small-scale producers like Midnight Charm Garment Co.

Midnight Charm, specializing in what owner Lei Congrui calls ‘erotic clothing’, exemplifies the reliance on this trade. With 70 per cent of his revenue derived from US sales, Lei, like many others in Guanyun, faces an uncertain future. De minimis curbs and higher tariffs will have a relatively large impact on us, Congrui admits.

Impact of potential de minimis changes

The potential impact of the US eliminating the de minimis rule extends far beyond Guanyun. Nomura, a financial services group, estimates the following consequences.

Table: De minimis impact

Source: Nomura

These figures paint a stark picture for China's export-oriented economy, particularly for industries like apparel that rely heavily on the de minimis exemption. Nomura's chief China economist, Ting Lu, warns that ‘blue-collar workers from those small factories of unbranded, low value-added and labour-intensive products will be most affected.

Government investment and overcapacity concerns

Guanyun's local government has invested heavily in the lingerie industry, pouring 22 billion yuan ($3 billion) into the WeMet Industrial Park, also known as ‘Victoria's Secret Town’. However, the park remains largely vacant, raising concerns about overinvestment and the potential for a sharp downturn. This situation mirrors a broader trend in China, where local governments often invest heavily in specific industries, leading to excess manufacturing capacity and deflationary pressures. Majid Ghorbani, an associate professor at the China Europe International Business School, criticizes this approach, stating that local governments "only think as far as they can see," ignoring the potential consequences for the national economy.

Therefore, as the US and other countries consider changes to the de minimis rule, businesses in Guanyun and across China are exploring alternative strategies. Some are considering establishing warehouses in the US to bypass the tariffs, while others are looking to diversify into new markets.

The future of Guanyun's ‘erotic clothing’ industry, and China's broader e-commerce sector, hinges on the decisions made in Washington and other global capitals. The stakes are high, with millions of jobs and billions of dollars in trade hanging in the balance.