Shein and Temu look to avoid U.S. tariffs by shifting production away from China

In the face of increasing uncertainty over U.S. tariffs, eCommerce behemoths Shein and Temu are making efforts to diversify their supply chains by shifting production away from China, as per a February 14 report by The Wall Street Journal.

The change comes after the Trump administration reassesses the de minimis exemption’s future, which in its current state permits items of less than $800 to ship into the U.S. duty-free. The administration first set out to discontinue the exemption for packages that originate from China before reversing its decision, arguing that it needed improved processing facilities for small packages.

The proposed imposition of additional tariffs on Chinese imports could undermine the price margins Shein and Temu now have over U.S. rivals. Both companies have benefited from fast growth, driven by cheap Chinese imports, but the threats to U.S. tariff policy could undermine their models. In response, Shein has started to diversify its supply options and build warehouses outside of China. This diversification approach seeks to offset the risk of tariff increases and keep its competitive advantage in the American market.

At the same time, Temu, owned by Chinese eCommerce giant PDD Holdings, has changed its pricing model by increasing prices and asking suppliers to hold inventory in the U.S. In fact, more than one-third of the products Temu retails to U.S. consumers are now filled from inventory held within the country. The company is also ramping up efforts to access international markets outside the U.S. to decrease its dependence on Chinese supply chains.

In 2024, Chinese imports taking advantage of the de minimis exemption totaled a whopping $46 billion, with Shein and Temu responsible for about 30% of those shipments. But the threat of tariffs on these small packages may compel both companies to change their business models.

Shein, specifically, has been experiencing the financial implications of such uncertainties. The company, which had been working on a London Initial Public Offering (IPO), is likely to lower its valuation by as much as 25%. Shein is reportedly likely to lower its valuation from $66 billion in a 2023 funding round to as low as $50 billion as a result of the anticipated effect of tariffs on its business.

Temu, in turn, is also making changes to its supply chain. The company is transitioning from a model where it handles all of merchant operations such as pricing, shipping, and marketing. This change would make consumers pay more, as merchants lose the economies of scale offered by Temu when it handled everything for them.

While Shein and Temu chart their course through the changing tariff environment, their capacity to adjust to these obstacles will be central to their future success.