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Chinese Retail Giants Temu and Shein Threatened by New US Import Rules

by The Business Pinnacle
0 comments

According to observers, Shien and Temu will respond to the planned crackdown depending on the scope and quantity of tariffs imposed.

The planned restrictions by Washington on the tax-free import of Chinese goods will put additional strain on consumer sector heavyweights like Temu and Alibaba Group Holding Ltd., which are already having difficulty navigating a domestic consumer crisis.

Smaller rivals JD.com and Alibaba dipped to almost 2% in Hong Kong as most investors analyzed the potential consequences of the US intentions of starting to tax goods which are valued less than $800.

This slams down and shuts a loophole that was created by fashion focused competitor Shien and PDD Holdings Inc’s Temu for years to ship hundreds of millions of packages into the US annually. They planned to carve out a market at the expense of Amazon. In the past week, the shares of PDD dropped by 2.4%.

The parts of the US retail arena are threatened to be reshaped by the move which may deflate the excitement that tags along with the meteoric ascent of bargain markets like Alibaba’s AliExpress, Temu and Shien. This also impacted the shares of other US reliant retailers such as Australian fashion outlet Cettire Ltd. on Monday.

According to observers, Shien and Temu will respond to the planned crackdown depending on the scope and quantity of tariffs imposed.

The White House suggested guidelines to limit the use of the de minimis exemption, which permits products valued at less than $800 to be shipped straight to customers without customs declarations or fees. The measures are designed to reduce customs evasion and prevent fentanyl-laced imports.

The investors were prepared for this move for a long time now. The ultra-fast fashion was kept in sight by the European Commission from 2021. This took place when the President, Ursula von der Leyen claimed this to be a “poison” to the environmental impact of disposable clothes. Other concerns like drugs and other illegal items slipping into the country are also the concerns of the US officials.

The growth of Temu and Shien was said to be non-contingent on the tax-free policy in a separate statement. Their main focus of the chinese linked firms would be on business efficiencies and maintaining customer relationships.

As of now, the investors have taken on the wait-and-see perspective despite the expected impact being much broader. Under the pressure of Temu and Shien, Amazon has developed a discount marketplace for the Chinese merchants on its platform to ship directly to the US.

“The clear positive is the potential reduction in competitive pressures from China-based exporters, with impact across marketing cost and demand,” Morgan Stanley analysts led by Nathan Feather wrote, outlining how US retailers like eBay Inc. and Etsy might benefit. Still, they said, both of those companies “have Chinese seller bases.”

Shein, which is preparing for an IPO that might value the Chinese garment behemoth north of $60 billion, pioneered the strategy of targeting cost-conscious Americans with $2 blouses and $10 shirts during COVID-19. In 2022 Temu jumped with the “Shop like a Billionaire” catchphrase to be a part of this. This rapidly grew to be the biggest growth driver worldwide for PDD. 

Analysts estimate Temu contributes for a low-teens percentage of PDD’s entire sales, however a major portion of that comes from the United States. According to Jefferies analyst Thomas Chong, Temu likely handled around $20 billion in gross merchandise volume in the first half of 2024, with roughly 40% coming from America. And the spectacular rise that made PDD a market darling is already showing signs of slowing, hampered by China’s persistent consumer downturn.

Shein can’t afford any uncertainty ahead of its market debut. While both are under increasing scrutiny in the United States as its relationship with China comes into focus ahead of the November elections.

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