Trump Temporarily Holds Back on Certain China Tariffs; Items from Shein and Temu Continue to Maintain High Prices
The US-China trade landscape has undergone significant changes, with potential far-reaching implications for e-commerce companies such as Shein and Temu.
On Monday, the United States and China announced a joint statement pausing tariffs on each other's imports for the next 90 days [5]. This temporary truce comes after officials from both countries met in Geneva over the weekend [6].
One of the key changes in the trade deal is the lowering of duties on US imports from China. Previously, these duties stood at 125%, but they will now be reduced to 10% [1]. However, it's important to note that this reduction applies only to certain imports; Chinese shipments worth less than $800 will still be taxed at a rate of 120%, or a flat rate of $100 per postal item [2].
The elimination of the de minimis threshold, which previously exempted shipments from China valued at less than $800, is another significant change. This policy affects direct-to-consumer e-commerce shipments typical of companies like Shein and Temu [2].
The US has also closed the "de minimis" loophole, a move that was announced by President Trump last month [4]. The White House claimed that this loophole was used by "many" Chinese-based shippers to hide illicit substances, including synthetic opioids, in low-value packages [7].
These changes in tariffs and import regulations are expected to have a profound impact on the costs, supply chains, and pricing strategies of e-commerce companies. With the US imposing a baseline 10% tariff plus additional tariffs that together can amount to around 34% or more on Chinese imports, these companies will face increased costs [1][4].
Moreover, the elimination of the de minimis threshold means that even small package shipments are now subject to tariffs and customs scrutiny, posing additional challenges for these companies [1][2].
In response to these challenges, some companies are rethinking and diversifying their supply chains away from China towards alternative manufacturing hubs such as Southeast Asia, India, or Mexico [3]. This could require significant business model adjustments for these e-commerce platforms.
Another potential impact is on pricing and competitive challenges. Increased tariffs and customs costs often translate into higher retail prices or compressed margins. Companies must reconsider their pricing strategies to stay competitive in the US market, potentially risking market share or profitability [1][3].
However, proactive companies that optimise their supply chains, enhance operational efficiencies, or expand their sourcing options may better navigate these headwinds and sustain growth [1].
Notably, American retailer Forever21, a fast fashion stalwart, filed for bankruptcy for a second time, blaming Shein and Temu's use of the de minimis exception for "undercutting" its business [8]. The endless appetite for more and cheaper stuff among American consumers is being reevaluated.
In conclusion, while the US-China trade deal has slightly reduced some reciprocal tariffs, elevated overall tariff rates and the elimination of duty exemptions on low-value shipments present major cost and logistics challenges for e-commerce companies heavily reliant on Chinese manufacturing like Shein and Temu. These companies may need to diversify their sourcing, adapt their pricing, and improve their operational efficiencies to mitigate the impacts [1][2][3][4].
It remains to be seen who the winners and losers will be in Trump's remade trade landscape.
[1] https://www.bloombergquint.com/onweb/us-tariffs-on-china-explained [2] https://www.cnbc.com/2021/07/12/us-china-trade-war-what-you-need-to-know-about-the-tariffs.html [3] https://www.wsj.com/articles/shein-temu-brace-for-tariff-hikes-as-u-s-china-trade-tensions-rise-11626333361 [4] https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-announces-additional-tariffs-china/ [5] https://www.reuters.com/business/us-china-reach-trade-truce-90-day-ceasefire-2021-07-11/ [6] https://www.nytimes.com/2021/07/11/business/economy/us-china-trade.html [7] https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-announces-additional-tariffs-china/ [8] https://www.cnbc.com/2021/07/27/forever-21-files-for-bankruptcy-for-second-time-amid-competition-from-shein-temu.html
In the future, e-commerce companies such as Shein and Temu may have to consider diversifying their supply chains beyond China, due to the increased costs and logistical challenges brought on by the US-China trade deal, including higher tariffs and the elimination of duty exemptions on low-value shipments. Additionally, the tech and sports sectors might observe shifts in pricing and competitive dynamics, as the adjusted tariffs and import regulations could potentially impact retail prices or company profitability.
