Political Pressure Mounts on Shein and Temu

Shein and Temu have been able to keep the cost of clothing on their platforms alarmingly low, but there’s been a hidden political cost racking up.

The Financial Times reported on Wednesday that the EU is preparing to crack down on cheap imports from Chinese e-commerce giants such as Shein and Temu. The two China-founded companies exploded in size over the past few years by taking advantage of tax loopholes to directly ship their products to consumers all over the world — but just as the sustainability of that business plan is starting to fray, geopolitics are weighing even heavier on the firms.

Stalling Fast Fashion

Temu and Shein have made their names by selling unbelievably cheap products, and they’ve done that using a tax rule called de minimis. In the US, de minimis means that when you ship an item worth less than $80, you don’t pay import taxes on it. Both companies have been directly shipping individual products to make the most of that rule, and they’ve made such an impression on the e-commerce landscape that Amazon last month launched a rival called Amazon Haul. However, there have been signs that both companies want to exit growth mode and adopt more conventional e-commerce models, buying up warehouses and finding new suppliers.

At the same time, political sentiment has been turning against Chinese fast-fashion giants. President Joe Biden announced in September he would crack down on de minimis shipments, and as President Trump returns to the White House with “stick it to China” high up on his to-do list, it seems likely that there’ll be at the very least a continuation in US policy there, if not an intensification. Now Europe is turning against them as well:

• Five sources told the FT that in Europe, where the de minimis threshold is currently €150 ($157), the EU is looking at levying a tax on e-commerce companies’ revenue as well as adding a handling fee for individual items.
• This is poor timing for Temu in particular, as its parent company PDD Holdings reported in its most recent quarterly filing that its growth had slowed significantly, even though its sales were up 44% year-on-year. Its share price is down 33% since the beginning of this year.

London Calling: There’s one sliver of good political news for Shein and its much-anticipated London IPO. While a question mark had hovered over whether the UK might make life hard for Shein over allegations of forced Uyghur labor in its supply chain, the head of the country’s financial regulator hinted in an interview with the Financial Times this week that it won’t be slamming the door on the company. “What parliament has not asked us to do is to be a broad regulator around every aspect of corporate behaviour and every company listed in the UK, everywhere around the world,” Nikhil Rathi, chief executive of the Financial Conduct Authority, told the FT.