Jakub Porzycki | Nurphoto | Getty Images
Shares of Temu parent PDD Holdings closed down 5.9% on Monday, after President Donald Trump’s tariffs announcement signaled the end of a trade loophole used by the Chinese e-commerce giant and other online retailers.
Trump on Saturday signed executive orders imposing 25% tariffs on imports from Canada and Mexico, while adding an additional 10% levy on goods from China. Trump on Monday agreed to pause tariffs on Mexico for one month, while the import taxes remain 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 like PDD’s Temu and Shein. The de minimis exemption allows packages worth less than $800 to be shipped into the U.S. duty 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 prices on everything from clothes and furniture to electronics and home decor.
Lawmakers have zeroed in on de minimis in recent years, arguing it gives Chinese companies an unfair advantage by allowing them to bypass tariffs. Officials have also said de minimis packages are “subject to minimal documentation and inspection,” raising product safety concerns. Trade organizations and advocacy groups have also pushed Trump to curb de minimis shipments because they argue that it has allowed shipments of fentanyl to enter the U.S.
Without that tax advantage, it’s unclear if Temu, Shein and other Chinese e-commerce platforms will be able to keep prices low and sustain the explosive growth they’ve seen in the U.S. in recent years.
Temu and Shein have previously said 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 ship goods to the U.S. and store them in local warehouses. It’s more in line with Amazon’s logistics network, which spans 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 estimated Temu’s local warehouse program remains a small portion of its overall business.
“Although Temu’s efforts in ramping up its local warehouse/semi-managed model over the past year could help mitigate some of the tariff risks, we estimate the [gross merchandise volume] from local warehouses might have contributed 20%+ to U.S. GMV by end-2024,” the analysts wrote. 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 dampen 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 clients. Shein and Temu have been significant contributors to Meta‘s advertising revenue in recent quarters. The companies have gone on a digital marketing blitz in an attempt to reach more American consumers.
“Meta’s 10-K indicates that revenue from China-based advertisers represented 11% of Family of Apps revenue (vs 6% in 2023), and we estimate Temu and Shein exposure could be 2-4% of ad spend for Google and Meta,” the Bank of America analysts wrote.
WATCH: Tariffs’ toll on e-commerce
