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Home»Economic News»how does Temu respond to tariff threats?
Economic News

how does Temu respond to tariff threats?

February 14, 2025No Comments4 Mins Read
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Roula Khalaf, Editor of the FT, handpicks her favorite stories for this weekly newsletter.

The recent tariff threats by the Trump administration have brought uncertainty to the business model of Temu and other major ecommerce companies. The White House initially planned to close a loophole in 2025 that allowed low-value parcels from China to enter the US without import taxes. Although the closure was reversed, the risk of a permanent move remains.

Opinions differ on the impact of this threat on the business. The FT’s Lex Column argued, “Chinese online stores do not need a tax loophole to pose a significant threat to traditional retailers.”

On the other hand, the Economist stated, “Many American consumers have been willing to overlook the subpar quality of products from Shein and Temu due to their low prices. This will change when tariffs and customs fees are added, potentially doubling prices for consumers.”

Which assessment holds more weight? Temu, owned by PDD Holdings, is a Chinese company operating an online B2C platform that launched in the US in September 2022. The company has rapidly expanded internationally, operating in nearly 80 countries by 2024 with estimated annual revenues of $50 billion, a three-fold increase from 2023.

Test yourself

This is part of a series of regular business school-style teaching case studies focused on business dilemmas. Read the text and suggested articles from the FT and other sources before answering the questions raised. This series is part of a collection of FT ‘instant teaching case studies’ exploring business challenges.

Most descriptions of Temu’s business model highlight its ability to leverage lower labor costs in China to offer a wide range of household products to customers worldwide. Temu sells products from companies without well-known brands, with prices reportedly up to 80% lower than competitors, along with free shipping and returns.

The slowdown in Chinese consumption growth has pushed manufacturers to seek other markets for their excess capacity, selling at marginal costs. Temu has capitalized on this trend effectively.

Prior to President Trump’s tariff actions, Temu had already anticipated tougher import regulations for low-cost imports signaled by officials in Washington and Brussels. Policy changes take time to implement and can be reversed due to customer backlash. Temu, with tens of millions of American and European users, took swift actions to adapt:

  • Diversified international sales to reduce reliance on the US market

  • Sourced products from non-Chinese locations for the US market

  • Offered other companies to sell on its platform, handling their product shipping to the US

  • Established warehouses in the US, shipping containers from China without duty exemptions

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

These strategic moves demonstrate the flexibility available to international ecommerce platforms in navigating trade tensions. With over 200 customs territories globally, Temu has options to adjust its commercial footprint and operations.

Are these actions sufficient to ensure the company’s continued success? What are the explicit and hidden costs involved? Considering the competitive landscape, including other ecommerce platforms, traditional retailers, and omnichannel strategies, can Temu sustain its growth amidst rising protectionism?

Given the “winner takes it all” nature of ecommerce, has Temu already reached a size where it can withstand protectionist measures?

Questions for discussion

  • What value proposition will Temu offer its US customers in the future?

  • Aside from US tariff changes, what other policy risks pose a significant threat to Temu’s US business?

  • How can Temu offset the costs of setting up US warehouses and forgoing duty exemptions?

  • Do you believe Temu’s actions adequately address emerging policy risks to protect and advance its global business?

Carlos Cordon is Professor of Strategy and Supply Chain Management at IMD. Simon J. Evenett is Professor of Geopolitics & Strategy at IMD and Co-Chair of the World Economic Forum’s Global Futures Council on Trade & Investment.

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