President Donald Trump’s crackdown on trade could effectively kill the current business models of Chinese companies Shein and Temu (PDD), delivering a huge boost to Amazon (AMZN) in the process.
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Specifically, in addition to the extra 10% tariff on Chinese goods, the president’s plans involve closing a 100-year-old loophole that allows online retailers to send small packages to the U.S. without paying tax.
The long-standing “de minimis” rule exempts shipments under $800 – but Trump wants this to no longer apply to goods coming from China, effectively adding a huge additional levy on online retailers such as Temu or Shein that would not apply to domestic retailers like Amazon.
Citigroup analyst Alicia Yap said the impact on Temu could have a “negative read-through to its growth in 2025 and beyond.”
As a result of the rule change, companies like Temu, Shein and Alibaba will have to shift their business model to match that of Amazon’s, building warehouses in the U.S. from which to ship orders.
Andrew Wilson, deputy secretary-general for policy at the International Chamber of Commerce (ICC), told the Financial Times, the companies “will accelerate their moves towards what essentially is the Amazon model of having warehouses in the U.S.”
Indeed, Temu already began moving its business model along these lines last year, recruiting Chinese suppliers with warehousing facilities or contracts in the U.S. as it moves from a “fully-managed” to a “semi-managed” model.
But Citi points out that this part of the business remains small. Although Temu’s efforts in ramping up its U.S. warehouses and semi-managed model over the past year could help mitigate some of the tariff risks, they estimate the gross merchandise volume from local warehouses may have only accounted for about a fifth of U.S. sales last year.
De Minimis Helped PDD Undercut U.S. Firms
Trump’s clampdown is not out of the blue. The Biden administration last year started to take steps to curb what it called the “overuse and abuse” of de minimis, saying it unfairly helped Chinese e-commerce companies undercut competitors with lower prices. Officials have also raised concerns about safety as the shipments are “subject to minimal documentation and inspection.”
The volume of these shipments has skyrocketed from 139 million a year in 2015 to over 1.36 billion in 2024, with more than half of these originating in China.
Ironically, the cost limit was increased from $200 to $800 in 2016 after lobbying by U.S. online retailers including eBay (EBAY) and Etsy (ETSY).
This in turn helped fuel aggressive growth by China’s ecommerce companies in the U.S. market, which has put pressure on the likes of AMZN to counter. In response to this competition, the company in November launched a new outlet called Haul which caps the price of products on sale at $20.
But the closing of the loophole means shipments from China will be subject to existing tariffs plus the additional 10% tariff. Inspections at ports will also require longer shipping times and incur higher non-tariff costs.
Is PDD a Good Stock to Buy?
Overall, Wall Street has a Moderate Buy consensus rating, though none has updated price targets since last year. Analysts with a three-month price target are split along the lines of six Buys, four Holds and one Sell. The average PDD price target is $134.71, implying 18% upside.
