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how does Temu reply to tariff threats?

by Index Investing News
February 15, 2025
in Economy
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Unlock the Editor’s Digest free of charge

Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.

The Trump administration’s latest tariff threats have elevated uncertainty over the enterprise mannequin of Temu and different massive ecommerce teams. The White Home reversed its preliminary closure in 2025 of a loophole that allowed low-value parcels shipped from China to enter the US with minimal fuss and no import taxes. However the danger of a everlasting transfer lingers.

Opinion is split over the ensuing risk to the enterprise. The FT’s Lex Column argued: “Chinese language on-line retailer doesn’t want a tax quirk to be an enormous risk to bricks-and-mortar retailers.”

Nonetheless, for the Economist, “Many American shoppers have been keen to miss the customarily shoddy high quality of merchandise from Shein and Temu as a result of they’re so low-cost. This may change when tariffs and different customs charges are added, which in some circumstances will double the costs for shoppers.”

Which evaluation is extra compelling? Temu is owned by PDD Holdings, a Chinese language firm. Temu operates a web based B2C platform that went stay within the US in September 2022. Worldwide growth has been speedy: by 2024, it was working in nearly 80 nations. Annual revenues have been estimated at $50bn, a three-fold enhance over 2023.

Take a look at your self

That is a part of a sequence of normal enterprise school-style instructing case research dedicated to enterprise dilemmas. Learn the textual content and the articles from the FT and elsewhere urged on the finish (and linked to throughout the piece) earlier than contemplating the questions raised. The sequence types a part of a wide-ranging assortment of FT ‘prompt instructing case research’ that discover enterprise challenges.

Most descriptions of Temu’s enterprise mannequin emphasise its capability to leverage decrease labour prices in China to make hundreds of thousands of family merchandise out there to prospects overseas. Temu sells merchandise made by firms that should not have internationally recognised manufacturers. Whereas reviews differ, Temu has been discovered to have costs as much as 80 per cent decrease than rival ecommerce platforms and nonetheless provides free transport and returns.

The expansion slowdown in Chinese language consumption has pressured the nation’s producers to look to different markets for his or her present capability, promoting nearer to marginal prices. Temu has been effectively positioned to capitalise on this case.

Throughout 2024, effectively earlier than President Trump’s most up-to-date transfer, Temu would have picked up on indicators from officers in Washington and Brussels that low value imports can be topic to more durable import regimes. Hostile coverage strikes should not confined to Western economies. Indonesia was an early mover, imposing restrictions on international ecommerce platforms in September 2023.

But coverage adjustments take time to be promulgated and rolled out. Typically mooted commerce coverage adjustments don’t occur in any respect and, even when they do, restrictive measures could be reversed after a backlash from these prospects which have been harmed. Tens of hundreds of thousands of People and Europeans use Temu’s app.

Sensible concerns intrude as effectively. In the intervening time, US customs officers merely should not have the capability to course of the extra paperwork. These concerns are factored in as firms assess their publicity to additional protectionism. Temu took them under consideration in a sequence of swift responses:

  • A global gross sales diversification push to scale back dependence on the US market to lower than half international revenues

  • The sourcing of merchandise offered within the US market from non-Chinese language places

  • Providing to promote on its platform the merchandise of different firms, which retain accountability for transport their merchandise to the US

  • Establishing warehouses within the US and transport full containers from China, forgoing customized obligation exemptions

The Yusen container terminal on the Port of Los Angeles. Temu has been transport full containers from China to the US © Eric Thayer/Bloomberg

These strikes spotlight the assorted levels of freedom out there to ecommerce platforms that function internationally. Commerce tensions and commerce wars are usually bilateral or confined to a small variety of nations. With greater than 200 customs territories world wide, Temu has many choices for reconfiguring its business footprint and its operations. 

However are the strikes outlined above sufficient to make sure that the corporate continues to thrive? And what prices — specific and hidden — are concerned? Since competitors is at all times relative, consideration must be given to the relative strengths of different ecommerce platforms, to bricks-and-mortar retailers and to firms reaching prospects by means of an omnichannel technique, which gives a seamless expertise throughout web sites, apps, social media and different channels.

Since ecommerce enterprise fashions have a “winner takes all of it” strategy, might Temu have already grown so large that it will probably take protectionism in its stride?

Questions for dialogue

  • What’s the most engaging worth proposition that Temu will be capable to provide its prospects primarily based within the US in future?

  • Apart from the at the moment introduced US tariff adjustments, what different coverage dangers characterize a first-order risk to Temu’s enterprise within the nation and why?

  • How would possibly Temu cowl the extra prices of organising warehouses within the US and of forgoing US customized obligation exemptions?

  • Do you assume the steps taken by Temu are enough to deal with emergent coverage dangers in a way that protects and advances its international enterprise?

Carlos Cordon is Professor of Technique and Provide Chain Administration at IMD. Simon J. Evenett is Professor of Geopolitics & Technique at IMD and Co-Chair of the World Financial Discussion board’s World Futures Council on Commerce & Funding.



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