Donald Trump’s victory in the presidential election could spell trouble for Chinese fast-fashion brands, particularly Gen Z-favorite budget brands like Shein and Temu.
On Monday, Trump said in a Truth Social post that he intends to slap China with an additional 10% import tariff — on top of any tariffs he already plans to impose. He said these tariffs were a punishment for China sending “massive amounts of drugs, in particular Fentanyl,” to the US.
In his first term, from 2016 to 2020, Trump imposed protectionist policies, including 25% tariffs on $50 billion worth of Chinese goods, leading to a trade war with China.
While campaigning this year, Trump said he would impose tariffs of 60% or higher taxes on Chinese products.
In response to Trump’s Monday statements, Chinese Embassy Spokesperson Liu Pengyu said that “no one will win a trade war or a tariff war.”
A report published by the National Retail Federation on November 4 calculated that American consumers could lose between $46 billion and $78 billion in spending power yearly.
If Trump imposes a 10% universal tariff on all imports and an additional 60% to 100% tariff on goods from China, apparel prices would increase between 12.5% and 20.6%, the NRF wrote in the report.
Consumers would cut back spending on apparel by up to 33%, the NRF report projects.
The stakes are high for cheap Chinese e-commerce businesses: Temu parent company PDD has for months warned of slowing profits. The company’s stock is down 31% this year. Meanwhile, Shein is gearing up for a hotly-anticipated initial public offering, likely next year.
David Jacks, an economics professor from Singapore’s Yale-NUS College, told BI that it’s “hard to think of any scenario” where the fast-fashion industry “completely escapes revived US protectionism.”
He said that because their supply chains originate from China, Shein and Temu are “likely to receive even greater scrutiny and suffer higher tariffs” compared to other businesses that manufacture in Bangladesh and Morocco, for example.
“Consumers will almost certainly pay higher prices, and producers will almost certainly earn lower profits,” Jacks added.
The companies have not publicly addressed possible US tariffs, including on PDD’s earnings call last week. Lei Chen, PDD’s co-CEO, said on the call that “intensifying competition in the global market” and a “complex external environment” will bring “ups and downs.”
Neither Shein nor Temu responded to Business Insider’s requests for comment.
Shein and Temu won’t escape the consequences of tariffs
Jeffrey Towson, the founder of US and China-based retail consultancy TechMoat Consulting, said that Shein and Temu are popular in the US precisely because of their cheap products.
“Shein and Temu excel at very low prices. That’s why American consumers love them. But there is nothing left to squeeze out of their China supply chains,” Towson told BI.
He said that consumers are likely to face price increases unless “the supply chains are redirected,” which he said was “very likely.”
Emily Pfeiffer, a principal analyst at market research firm Forrester, said that she expects struggles for the businesses in the future, especially after Amazon launched its own low-price site called Amazon Haul.
“Shein and Temu only became popular in the US relatively recently, over the past four years or so. They haven’t been subjected to changes that would have a sudden, significant, negative impact on their competitiveness as low-price marketplaces,” Pfeiffer said.
But Jacob Cooke, CEO of e-commerce consulting firm WPIC Marketing + Technologies, offered an alternative view. He said that even if the tariffs are imposed on Temu’s imports, the brand “will still be price competitive due to thinner merchant margins and access to cheap Chinese sourcing.”
Shein and Temu have made bank in the US
Shein is known for its massive garment production. Analysts have called Shein’s business model “real-time retail” because new designs can take as little as three days to produce, Vox reported in 2021.
The company is planning to go public in the UK, eyeing a $65 billion valuation, Bloomberg reported in October.
However, its reputation has been marred by exploitative labor practices and investigations that showed that its products contained toxic substances.
And while Shein has become synonymous with fast fashion produced in China, it’s facing rising competition from Temu.
Temu sells low-cost products ranging from home goods to motorcycle accessories. In February, it spent millions of dollars on Super Bowl advertisements in an effort to win over the US market.
Both brands have been under regulatory scrutiny. In September, the Biden administration announced that it would take steps to reduce the “abuse” of a trade law that has allowed firms like Shein and Temu to avoid taxes and tariffs when they enter the US.
The trade provision, called “de minimis,” allows importers to avoid paying import fees on shipments of less than $800 if they go straight to consumers.
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