Temu ditches Chinese imports model to avoid Trump’s tariffs

BEIJING – Temu is abandoning the model centred around cheap Chinese imports that catapulted it to success in the US, aiming to sell only goods from local merchants to American consumers for the foreseeable future.

PDD Holdings’ online retail phenom, which, much like Shein Group, burst onto the scene just a few years ago with cut-price items from dresses to kitchen towels, intends to shift to what it calls a “local fulfilment” model.

The company is actively recruiting US merchants and will sell only their locally based merchandise, Temu said in an e-mailed statement. That’s expected to allow the Chinese-owned company to sidestep tariffs, and it said it intends to keep prices for Americans unchanged.

Temu’s shift comes as retailers from Shein to Alibaba Group Holding grapple not just with soaring import taxes, but also the scrapping of the so-called de minimis tariff exemption for small parcels, which became effective on May 2.

Under that exemption, international packages shipped directly to US consumers with a retail value of no more than US$800 (S$1,000) were able to bypass Customs declarations duty-free. Now, packages from China and Hong Kong worth up to US$800 are either taxed at a rate of 120 per cent of their value or face a flat fee.

Before shifting to the new model, e-commerce giants like Temu and Shein saw prices soar in the US, as President Donald Trump enacted levies to try and force Beijing to seek a trade deal that slashes the bilateral trade deficit, and has said he expects China to “eat” the tariffs.

“The move is designed to help local merchants reach more customers and grow their businesses,” Temu said. It’s also “part of Temu’s ongoing adjustments to improve service levels”.

As at last week, the PDD unit had appeared to pass on nearly all of Mr Trump’s new import taxes to US consumers, by adding a clearly labelled surcharge for buyers at checkout. Fast-fashion giant Shein also raised US prices of its products, with hikes of more than 300 per cent for certain items.

Temu had asked Chinese factories to ship their goods in bulk to US warehouses back in February in what it calls a “half-custody” framework, where it only manages the online marketplace. However, as inventory in the US depletes over time, prices could eventually go up when factories replenish stocks if tariffs on Chinese imports remain elevated at 145 per cent.

Major US retailers haven’t yet raised the prices of goods on shelves. But they’re caught in a bind as Chinese suppliers refuse to absorb tariffs and uncertainty mounts over how long the extra levies will be in place.

Companies like Walmart and Target could also come under political pressure to absorb some – if not all – of the cost increases, which could help cushion the direct impact on shoppers. 

The example of Amazon.com – which said last week that it wouldn’t display the cost of US tariffs on products, after the White House slammed the reported move and Mr Trump complained to Mr Jeff Bezos – underscores the difficult position US consumer retailers are in. If they don’t pass on cost increases, profit margins will narrow and become a drag on their stock price. BLOOMBERG