Shein and Temu Explores European Markets After Tariffs But Fear Losing American Consumers

Shein’s representative stated that to ensure safety and quality standards, the company spent $15 million on product and safety checks and conducted 2.5 million product tests.

Consumers often buy products through online shops on platforms like Amazon, Shein, and Temu. The primary source of customers for them used to be Americans, but ever since US President Donald Trump scrapped the duty-free imports, it has demolished the company’s business model of exporting cheap goods into the US. They are exploring new markets in Australia and Europe to soften the blow.

The companies used to import cheap clothing, electronics, toys, and homeware by taking advantage of low-cost, high-volume manufacturing operations in China. However, Trump’s administration’s on-again-off-again trade war with China increases the pricing of goods, which puts pressure on either retailers or consumers to pay.

Last year, under the de-minimis rule, 1.36 billion goods were transported to the US, which exempts goods under $800 from import tax. Goods purchased from Temu and Shein now have a 30% tax on goods up to $50 apart from the 145% tariffs imposed by Trump on China.

So naturally, Chinese companies shifted their focus to European markets, spending millions of dollars on advertisements to attract European consumers. But that has slowly slowed down. They are not willing to give up their core markets in the US, so they are willing to take high risks and lower margins than handle the challenges in the European market.

The reason Chinese companies would rather sacrifice their profits than enter the European market is that the EU and UK markets have far more product standards and safety protection than the US. The American market has non-tariff barriers (NTBs), which are restrictions on international trade that are not from tariffs or taxes.

The European Commission was investigating Temu products for potential violations related to the sale of illegal goods and misleading user interface designs. Similarly, Shein got a different lawsuit alleging false discounts and sustainability claims. The company has one month to respond or pay the fine based on its EU turnover.

Bernhard Kluttig, a deputy German economy minister, claims their intention is not to block affordable products or intelligent business models but rather to protect consumers from unsafe goods.

The European Commission has launched an initiative called Priority Control Areas to conduct surprise border checks to find products that do not meet EU standards.

It was after Darmstadt Regional Council, a regional authority in Germany, tested around 800 products of Asian e-commerce and found that 95% of the consumer products did not meet the standards.

The EU is in the process of enforcing stricter rules and ruling out the de-minimis customs duty exemption. But the US was faster and removed its equivalent in May, which is quite risky since the retailers might find a way to dump the goods in Europe.  

A Temu representative claimed to take product safety checks very seriously through robust onboarding checks and regular monitoring to ensure compliance and work with certification agencies.

Similarly, Shein’s representative stated that to ensure safety and quality standards, the company spent $15 million on product and safety checks and conducted 2.5 million product tests.

According to Mark Greeven, dean of Asia at IMD Business School, online retailers did not view the increasing regulatory complexity as an insurmountable barrier. The companies are ready to expand their warehouses in European markets, with companies like Temu exploring different business models and working with small businesses in Europe.

He added that it would be challenging to build a market of ultra-low-cost models with an algorithmically marketed model that worked in the US. It could take some time to understand how to navigate the tariffs and tailor their products to the European market.

However, Chinese retailers have crossed many storms in their existence, making them highly efficient and adaptable.

Wang from the Shenzhen Cross-border E-commerce Association stated that the future of tariffs is chaotic, but their shift to other markets would depend on the tariff number.

When the tariffs were at 54%, retailers continued to stay in US markets for cash flow even though they made thinner profits.

He added that when the tariff number becomes even higher than before, the companies will have to exit the market and look for new homes since staying here would mean dying faster.