Trade war led Temu, Shein to retreat, but it may be temporary

As President Donald Trump intensifies his trade war to stack up tariffs on many Asian countries that produce the goods that consumers in the U.S. rely on, low-cost Asian retail upstarts Temu and Shein may yet find a way back to big success in the U.S. market.

The Asian rivals to Amazon were directly targeted by Trump in the removal of the tax-exempt status on low-volume shipments from overseas, the so-called de minimis tax. In May, Temu temporarily stopped shipping from China to the U.S. But as the trade war hits all the goods manufacturers across Asia, some retail experts say Temu and Shein may ultimately prevail with business models designed to eke out margins in a tough environment.

“The trade wars can help Shein and Temu,” said Les Mandelbaum, president of modern home decor company, Umbra, which makes its goods in Vietnam. “The Trump administration thinks they have been weakened, but even with the tariffs, they are the cheaper alternative for consumers. The companies have been flexible in adapting, and they have warehouses in the U.S. I don’t think they are weakened to the degree the administration hoped.”

Ed Sander, analyst at Tech Buzz China, said that by the surface numbers, the two Asian low-cost retailers have been clearly weakened by the trade war. Even with a pause in the steepest tariffs on Chinese goods, direct-to-consumer shipments from China after the cancellation of the de minimis tax exemption reach a tariff rate of 54%, and that has erased a significant amount of the price advantage that Temu and Shein previously had.

But Susannah Streeter, head of money and markets at U.K.-based financial services firm Hargreaves Lansdown, told CNBC that due to the nature of their business models, “They are still likely to be formidable competition.”

Temu and Shein can manufacture and distribute products “super-cheaply,” she says, and they have no brick-and-mortar stores to support, while also relying on low-wage manufacturing locations. In addition, the companies “have been known for implementing aggressive cost-cutting measures throughout the supply chain,” Streeter added.

The Asian manufacturing methods have raised serious concerns about materials sustainability, the environmental impact of production, and human rights violations in the labor force that may be required to sustain the low price tags. But the bottom line, according to Streeter, is that “the playing field is not level, despite the tariff changes.”

“Although a growing number of consumers are increasingly concerned about sustainability and human rights, and may resist the lure of the fast fashion giants, households on tight budgets are likely to be tempted by price, rather than reputation,” she said.

Price hikes to come, fear of ‘consumer goods depression’

That is Mandelbaum’s primary concern, as his company has cut down on products being manufactured overseas and exported to the U.S., shifting products to Europe, the company’s second-largest market, and other parts of the world. The…