Investing.com – The US government is now facing a growing e-commerce challenge: the growing influence of Chinese retail giants Temu and Shein.
Both platforms have revolutionized the US market with their ultra-low-cost products and unique consumer-to-manufacturer business models, providing huge price advantages over local competitors.
With the recent proposals made by the Biden administration to tighten trade regulations, especially by targeting the de minimis rule, which allows goods worth less than $800 to enter the United States without tariffs, the question arises: Can the government really save American e-commerce from these… Phenomenal players?
According to analysts from MoffettNathanson, any assumption that regulatory changes will cripple Temu and Shein’s operations is overly optimistic and short-sighted. The de minimis rule, which has been exploited more than a billion times a year by Chinese vendors, is a vital lifeline for these companies.
However, even if the government succeeds in closing this loophole, Moffett-Nathanson says companies are unlikely to pack up and leave.
Instead, they pivoted, increasingly storing goods in American warehouses, ensuring they could maintain fast delivery times, even under stricter trade regulations.
For example, Temu proactively stocked its best-selling products locally in the United States, mitigating the potential impacts of the rule change. The report notes that more than two-thirds of Temu’s most popular items are now in US warehouses, ensuring fast delivery times of two to four days.
The move is not only defensive but also strategic, indicating long-term ambitions to strengthen its presence in the US market. Likewise, Shein has made inroads by setting up warehouses and fulfillment centers in the US, further insulating itself from any immediate regulatory shocks.
The broader backdrop driving this is China’s slowing domestic consumption and retail growth, which is forcing its industrial base to shift towards Western markets.
Moffett-Nathanson notes that retail sales growth in China has slowed sharply from 12% in 2014 to plateau in 2022. With a manufacturing base built to meet global demand, China now views the West as a critical outlet for its massive production of discount goods.
This economic necessity means that even as regulatory pressures increase, Chinese platforms like Temu and Shein are likely to continue to find ways to penetrate Western markets.
With regard to competition, the proposed regulatory changes may radically change the e-commerce landscape in the United States. If Chinese competitors like Temu and Shein are stymied, Etsy (NASDAQ:) could benefit.
Etsy’s customer acquisition costs rose dramatically as it struggled to compete with aggressive marketing by its Chinese counterparts. The withdrawal of Timo and Shane could reduce this pressure, allowing Etsy to regain some of its lost marketing leverage.
However, Moffett-Nathanson cautions that Etsy’s advantage will be modest, given that competition from other global players remains fierce.
On the other hand, Amazon (NASDAQ:) appears to be well insulated from the rise of Timo and Shin. The retail giant has shown resilience, improving its advertising efficiency and cutting referral fees for low-cost items to remain competitive in categories where Temu and Shein have made inroads.
Amazon Prime membership, coupled with its unparalleled fulfillment capabilities, provides it with a buffer against pricing pressures imposed by Chinese platforms.
eBay Inc. (NASDAQ:), which has benefited from the influx of Chinese goods, faces more uncertainty. The platform’s relatively low fees have made it an attractive option for Chinese sellers seeking to reduce costs while reaching American consumers.
However, MoffettNathanson’s research suggests that eBay’s exposure to regulatory changes may be less than initially feared. Many of its Chinese-sourced goods, especially in the lucrative parts and accessories category, are already stored in US warehouses, meaning they will not be affected by the changes to the de minimis rule.
Ultimately, while the US government could try to limit the influence of Timo and Shen through regulatory interventions, Moffett-Nathanson’s analysis suggests that it is unlikely to be able to stem the tide of Chinese goods flowing into the market.
Both companies have demonstrated a remarkable ability to adapt, and their deep integration into the U.S. retail landscape makes it unlikely that they will simply fold in the face of rule changes. Moreover, China’s economic imperatives ensure that the West remains a critical destination for its discounted goods.