Business college educating case examine: how does Temu reply to tariff threats?

Unlock the Editor’s Digest free of charge

Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.

The Trump administration’s current tariff threats have elevated uncertainty over the enterprise mannequin of Temu and different giant ecommerce teams. The White Home reversed its preliminary closure in 2025 of a loophole that allowed low-value parcels shipped from China to enter the US with minimal fuss and no import taxes. However the danger of a everlasting transfer lingers.

Opinion is split over the ensuing risk to the enterprise. The FT’s Lex Column argued: “Chinese online store does not need a tax quirk to be a big threat to bricks-and-mortar retailers.”

Nonetheless, for the Economist, “Many American consumers have been willing to overlook the often shoddy quality of products from Shein and Temu because they are so cheap. This will change when tariffs and other customs fees are added, which in some cases will double the prices for consumers.”

Which evaluation is extra compelling? Temu is owned by PDD Holdings, a Chinese language firm. Temu operates a web based B2C platform that went stay within the US in September 2022. Worldwide enlargement has been fast: by 2024, it was working in nearly 80 nations. Annual revenues have been estimated at $50bn, a three-fold improve over 2023.

Most descriptions of Temu’s enterprise mannequin emphasise its capability to leverage decrease labour prices in China to make tens of millions of family merchandise accessible to prospects overseas. Temu sells merchandise made by firms that wouldn’t have internationally recognised manufacturers. Whereas studies range, Temu has been discovered to have costs as much as 80 per cent decrease than rival ecommerce platforms and nonetheless gives free delivery and returns.

The expansion slowdown in Chinese language consumption has pressured the nation’s producers to look to different markets for his or her current capability, promoting nearer to marginal prices. Temu has been effectively positioned to capitalise on this case.

Throughout 2024, effectively earlier than President Trump’s most up-to-date transfer, Temu would have picked up on alerts from officers in Washington and Brussels that low value imports can be topic to more durable import regimes. Hostile coverage strikes should not confined to Western economies. Indonesia was an early mover, imposing restrictions on overseas ecommerce platforms in September 2023.

But coverage adjustments take time to be promulgated and rolled out. Generally mooted commerce coverage adjustments don’t occur in any respect and, even when they do, restrictive measures may be reversed after a backlash from these prospects which have been harmed. Tens of tens of millions of Individuals and Europeans use Temu’s app.

Sensible concerns intrude as effectively. In the mean time, US customs officers merely wouldn’t have the capability to course of the extra paperwork. These concerns are factored in as firms assess their publicity to additional protectionism. Temu took them into consideration in a sequence of swift responses:

• A global gross sales diversification push to cut back dependence on the US market to lower than half world revenues

• The sourcing of merchandise bought within the US market from non-Chinese language places

• Providing to promote on its platform the merchandise of different firms, which retain duty for delivery their merchandise to the US

• Organising warehouses within the US and delivery full containers from China, forgoing customized responsibility exemptions

These strikes spotlight the varied levels of freedom accessible to ecommerce platforms that function internationally. Commerce tensions and commerce wars are typically bilateral or confined to a small variety of nations. With greater than 200 customs territories around the globe, Temu has many choices for reconfiguring its business footprint and its operations. 

However are the strikes outlined above sufficient to make sure that the corporate continues to thrive? And what prices — specific and hidden — are concerned? Since competitors is at all times relative, consideration must be given to the relative strengths of different ecommerce platforms, to bricks-and-mortar retailers and to firms reaching prospects by an omnichannel technique, which offers a seamless expertise throughout web sites, apps, social media and different channels.

Since ecommerce enterprise fashions have a “winner takes it all” method, might Temu have already grown so huge that it will probably take protectionism in its stride?

Carlos Cordon is Professor of Technique and Provide Chain Administration at IMD. Simon J. Evenett is Professor of Geopolitics & Technique at IMD and Co-Chair of the World Financial Discussion board’s World Futures Council on Commerce & Funding.