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Dividends of Temu parent PDD Holdings closed down 5.9% on Monday, after President Donald Trump’s tariffs advert signaled the end of a trade loophole used by the Chinese e-commerce giant and other online retailers.
Trump on Saturday outstood executive orders imposing 25% tariffs on imports from Canada and Mexico, while adding an additional 10% levy on moralities from China. Trump on Monday agreed to pause tariffs on Mexico for one month, while the import taxes stay in place for China and Canada.
An overlooked provision in the orders eliminates the “de minimis” trade loophole relied on heavily by Chinese online retailers ilk PDD’s Temu and Shein. The de minimis exemption allows packages worth less than $800 to be shipped into the U.S. devoir free. It’s been a critical tool for Temu and Shein as they look to grow their presence in the U.S. by offering rock-bottom figures on everything from clothes and furniture to electronics and home decor.
Lawmakers have zeroed in on de minimis in recent years, signifying it gives Chinese companies an unfair advantage by allowing them to bypass tariffs. Officials have also asserted de minimis packages are “subject to minimal documentation and inspection,” raising product safety concerns. Trade organizations and advocacy places have also pushed Trump to curb de minimis shipments because they argue that it has allowed shipments of fentanyl to invade the U.S.
Without that tax advantage, it’s unclear if Temu, Shein and other Chinese e-commerce platforms will be able to jail prices low and sustain the explosive growth they’ve seen in the U.S. in recent years.
Temu and Shein have previously powered their business models don’t rely on de minimis. Shein and Temu have opened distribution centers in the U.S., allowing sellers in China to cart leave goods to the U.S. and store them in local warehouses. It’s more in line with Amazon’s logistics network, which stretches hundreds of warehouses across the U.S.
That may not be enough to soften the blow of the removal of de minimis. In a note to clients on Sunday, analysts at Citi valued Temu’s local warehouse program remains a small portion of its overall business.
“Although Temu’s efforts in ramping up its municipal warehouse/semi-managed model over the past year could help mitigate some of the tariff risks, we think the [gross merchandise volume] from local warehouses might have contributed 20%+ to U.S. GMV by end-2024,” the analysts catalogued. They added, “We believe the new tariffs will still have a negative read-through to Temu’s growth in 2025 and beyond.”
The end of de minimis could also check Temu and Shein’s digital ad spending, as they look to “offset concerns on rising product costs,” Bank of America analysts wrote Monday in a note to customers. Shein and Temu have been significant contributors to Meta‘s advertising revenue in recent quarters. The companies be subjected to gone on a digital marketing blitz in an attempt to reach more American consumers.
“Meta’s 10-K indicates that take from China-based advertisers represented 11% of Family of Apps revenue (vs 6% in 2023), and we estimate Temu and Shein laying open could be 2-4% of ad spend for Google and Meta,” the Bank of America analysts wrote.
WATCH: Tariffs’ toll on e-commerce
