Online retailers like Temu, Shein, and AliExpress have been exploiting tax loopholes for more than a few years now, displacing other retailers because of their ability to produce cheap low quality goods and ship them for a very low cost all over the world. They have also been able to use their mass scale to skirt many safety regulations and concerns, thanks to the revenue in advertisement that they have managed to give both to content creators that promote them and to the platforms that house these creators, like Meta, YouTube and even Apple.
Their business model has been simple but effective, create the need for a product by contacting creators or making advertisements, producing said product for an obscenely low price and make it as low quality as possible so that it does not last or meet expectations (but since the price is so low it is not worth it to make a return) and rake in the profits. But this is all ending now as the US is closing the loophole that allowed for this to happen along with increasing the tariffs on imports.
The loophole that allowed companies like Temu and Sehin to prosper
Until now, goods made in mainland China and Hong Kong valued under $800 were tax exempt when entering the US. Given the very low prices of the products from these ecommerce platforms, it is rare that anyone had to pay any taxes to get their package. However, this loophole is now closed, and these platforms are now subject to the 145% import tax on Chinese products, which has more than doubled their price. In fact, the impact has been so big that Temu has begun adding “import charges” to their products since they are not willing to absorb the cost of the new tariffs.
The companies are trying to bypass the tariffs to continue to offer basement bargain prices. One of the ways Temu is doing so is by changing their direct sipping policy from China to a local warehouses in the United States as the company “transitions to a local fulfillment model.”
But this is not the only change that is being made. PDD Holdings, the parent company behind Temu, previously used aggressive ad spending to quickly scale its Chinese platform Pinduoduo. That same approach initially fueled Temu’s growth, placing it, and rival Shein, at the forefront of digital advertising across major platforms like social media and app networks. However, according to Sky Canaves of eMarketer, that saturation is starting to fade.
Data from Sensor Tower shows that during the first two weeks of April, Temu cut daily ad spending across platforms such as Facebook, TikTok, and YouTube by 31% compared to the previous month’s average. Shein also scaled back, reducing U.S. social media ad spend by 19% in the same timeframe.
Temu and Shein have now stopped advertising on Google and a study by Tinuiti showed Temu held a 19% share of U.S. Shopping ads on April 5, only to drop to zero by April 12. Shein followed a similar path, with its presence disappearing entirely by April 16 after starting the month with around 20%. Tinuiti linked this sharp retreat to rising tariffs, noting that both retailers had quietly begun increasing prices around the same time.
The decline in ad exposure has affected both platforms’ visibility. While they were once in the top 10 mobile app downloads in the U.S., both apps have since gone way down in the rankings. Over the past two years, Temu and Shein trailed only Amazon in digital ad spending across the U.S. but in a recent earnings call, Meta CFO Susan Li acknowledged that several Asian e-commerce brands had scaled back U.S. ad spending, anticipating policy changes such as the possible end of the de tax exemption. Although some of that ad budget has shifted to other international markets, Meta reported that April’s ad revenue from those companies still came in below last year’s levels. Li did not mention specific retailers by name.