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The Trump administration’s recent tariff threat has increased uncertainty over the business models of TEMU and other large e-commerce groups. The White House overturned the initial closure of a loophole that would allow low-value plots shipped from China in 2025 to enter the US with minimal fuss and import taxes. However, there remains a risk of permanent movement.
Opinions are divided into the resulting threats to business. The FT Lex column states, “China’s online stores don’t need tax quirks to be a major threat to brick and mortar retailers.”
But for economists, “Many American consumers are willing to overlook the quality of Shane and Tem’s products, which change when customs duties and other customs charges are added, and in some cases consumption. The price of the customer will be doubled.”
Which rating is more convincing? Temu is owned by PDD Holdings, a Chinese company. Temu runs an online B2C platform that was released in the US in September 2022. International expansion was rapid. By 2024, it was open in nearly 80 countries. Annual revenues are estimated at $50 billion, tripled in 2023.
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Most explanations of Temu’s business model highlight the ability to leverage lower labor costs in China to make millions of household items available to overseas customers. Temu sells products made by companies that do not have internationally recognized brands. Reports vary, but it is known that Temu has prices up to 80% lower than its rival e-commerce platforms, and continues to offer free shipping and returns.
The slowdown in China’s consumption growth forced country manufacturers to look to other markets due to their existing capabilities, resulting in sales close to marginal costs. Temu is well placed to take advantage of this situation.
Well before President Trump’s recent move, in 2024, Temu would have taken signals from Washington and Brussels officials that low-cost imports would be subject to a more stringent import regime. Adverse policy movements are not limited to the Western economy. Indonesia was the early invoker and in September 2023 imposed restrictions on foreign e-commerce platforms.
However, policy changes take time and are promulgated and unfolded. Sometimes trade policy changes can never happen, and even so, restrictive measures can be reversed after a backlash from harmed customers. Tens of millions of Americans and Europeans use the Temu app.
Practical considerations also infiltrate. At this time, US customs officials do not have the ability to process additional documents. These considerations are taken into consideration as companies evaluate further exposure to protectionism. Temu took them into consideration in a series of quick responses.
Promoting international sales diversification to reduce dependence on the US market to less than half of global revenue
Products sold in the US market can be sourced from locations other than Chinese people.
We offer to sell on the platform and retain responsibility for shipping other companies’ products to the US
Installing warehouses in the US and shipping full containers from China, with no exemption from customization obligations
These moves highlight the various degrees of freedom available to the internationally operating e-commerce platform. Trade tensions and trade wars tend to be limited to bilateral or small numbers of countries. With over 200 customs regions around the world, Temu has many options for reconfiguring its commercial footprint and operations.
But is the movement outlined above enough to ensure that the company continues to thrive? And what costs – explicitly and hidden – do they have anything to do with it? Competition is always relative, so it should be considered for the relative strengths of other e-commerce platforms, brick and mortar retailers, and companies reaching customers through omnichannel strategies. Other channels.
With the ecommerce business model having a “winner takes everything” approach, Temu has already grown so much that it can put protectionism into its journey?
Questions for discussion
What is the most attractive value proposition Temu can offer to US-based customers in the future?
Apart from the currently announced US tariff changes, which other policy risks represent the first order threat to Temu’s domestic business?
How can Temu cover the additional costs of setting up a warehouse in the US and refraining from the US custom mandatory exemption?
Do you think the measures taken by Temu are sufficient to address urgent policy risks in ways that protect and advance global businesses?
Carlos Cordon is Professor of Strategy and Supply Chain Management at IMD. Simon J. Evenett is Professor of Geopolitics and Strategy at IMD and is co-chair of the Global Futures Council of the World Economic Forum.