The Trump administration’s recent tariff threats have increased uncertainty over the business model of Temu and other large ecommerce groups. The White House reversed its initial 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. But the risk of a permanent move lingers.
Opinion is divided over the resulting threat to the business. The FT’s Lex Column argued: “Chinese online store does not need a tax quirk to be a big threat to bricks-and-mortar retailers.”
However, for the Economist, “Many American consumers have been willing to overlook the often shoddy quality of products from Shein and Temu because they are so cheap. This will change when tariffs and other customs fees are added, which in some cases will double the prices for consumers.”
Which assessment is more compelling? Temu is owned by PDD Holdings, a Chinese company. Temu operates an online B2C platform that went live in the US in September 2022. International expansion has been rapid: by 2024, it was operating in almost 80 countries. Annual revenues were estimated at $50bn, a three-fold increase over 2023.
Test yourself
This is part of a series of regular business school-style teaching case studies devoted to business dilemmas. Read the text and the articles from the FT and elsewhere suggested at the end (and linked to within the piece) before considering the questions raised. The series forms part of a wide-ranging collection of FT ‘instant teaching case studies’ that explore business challenges.
Most descriptions of Temu’s business model emphasise its capacity to leverage lower labour costs in China to make millions of household products available to customers abroad. Temu sells products made by companies that do not have internationally recognised brands. While reports vary, Temu has been found to have prices up to 80 per cent lower than rival ecommerce platforms and still offers free shipping and returns.
The growth slowdown in Chinese consumption has forced the country’s manufacturers to look to other markets for their existing capacity, selling closer to marginal costs. Temu has been well placed to capitalise on this situation.
During 2024, well before President Trump’s most recent move, Temu would have picked up on signals from officials in Washington and Brussels that low cost imports would be subject to tougher import regimes. Adverse policy moves are not confined to Western economies. Indonesia was an early mover, imposing restrictions on foreign ecommerce platforms in September 2023.
Yet policy changes take time to be promulgated and rolled out. Sometimes mooted trade policy changes don’t happen at all and, even if they do, restrictive measures can be reversed after a backlash from those customers that have been harmed. Tens of millions of Americans and Europeans use Temu’s app.
Practical considerations intrude as well. At the moment, US customs officials simply do not have the capacity to process the additional paperwork. These considerations are factored in as companies assess their exposure to further protectionism. Temu took them into account in a series of swift responses:
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An international sales diversification push to reduce dependence on the US market to less than half global revenues
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The sourcing of products sold in the US market from non-Chinese locations
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Offering to sell on its platform the products of other companies, which retain responsibility for shipping their products to the US
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Setting up warehouses in the US and shipping full containers from China, forgoing custom duty exemptions
These moves highlight the various degrees of freedom available to ecommerce platforms that operate internationally. Trade tensions and trade wars tend to be bilateral or confined to a small number of countries. With more than 200 customs territories around the world, Temu has many options for reconfiguring its commercial footprint and its operations.
But are the moves outlined above enough to ensure that the company continues to thrive? And what costs — explicit and hidden — are involved? Since competition is always relative, consideration needs to be given to the relative strengths of other ecommerce platforms, to bricks-and-mortar retailers and to companies reaching customers through an omnichannel strategy, which provides a seamless experience across websites, apps, social media and other channels.
Since ecommerce business models have a “winner takes it all” approach, could Temu have already grown so big that it can take protectionism in its stride?
Questions for discussion
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What is the most attractive value proposition that Temu will be able to offer its customers based in the US in future?
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Other than the currently announced US tariff changes, what other policy risks represent a first-order threat to Temu’s business in the country and why?
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How might Temu cover the additional costs of setting up warehouses in the US and of forgoing US custom duty exemptions?
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Do you think the steps taken by Temu are sufficient to address emergent policy risks in a manner that protects and advances 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.
