PDD’s push into the US with Temu costs a lot of money and angers some suppliers, but it was born out of necessity. While Chinese customers are spending less, other giant e-commerce companies are invading Pinduoduo’s core markets, selling unbranded goods and trying to capture a less affluent demographic. That means the company has to look abroad. “Exploring the US market is the best, and probably the only strategy Pinduoduo could use when faced with a saturated and overly competitive domestic market,” says Si.
But the US market isn’t just tough; it is becoming increasingly risky for Chinese companies.
Temu is currently benefiting from a trade loophole that allows duty-free shipments of up to $800 to the US. By shipping small packages from the Guangzhou warehouse to individual U.S. customers, the company can essentially sell duty-free in the U.S. But small business lobbies are calling for this “de minimis” threshold to be lowered to $10. If that happened, Temu’s costs would rise.
And, as a Chinese-owned platform, Temu is under scrutiny from US authorities who see data collection by Chinese companies as a threat to national security. In April 2023, the US-China Economic and Security Review Commission released a briefing warning of data and supply chain risks emanating from Chinese-owned e-commerce platforms, including Shein and Temu.
Calls to ban China-linked apps altogether have become commonplace in the US. In May, Montana became the first US state to formally ban TikTok, the social media platform of Beijing-based Bytedance. Last month, a CNN investigation revealed that the Pinduoduo app can bypass users’ mobile phone security to track activity in other apps, check notifications, read private messages, and change settings. While there’s no evidence Temu has similar data security concerns, Montana Governor Greg Gianforte has included the app in a list of technologies he says are “linked to foreign adversaries.”
“Western governments are very afraid of TikTok because it could direct people’s thinking, but the address details and payment details stored in the Temu app are also very sensitive to the US government,” says Li. The US government is concerned that personal data of US citizens may be passed on to China for intelligence gathering. If Temu gets big enough, the US government could conclude that it has too much data on US users.
But behind these risks lurks the possibility that the supply chain simply cannot sustain the low prices that people are accustomed to.
In China, some sellers have already given up. A major shift occurred in December 2022, when Temu began requiring manufacturers to bear half of the shipping costs to ship products from factories to its warehouse in Guangzhou.
Sandy says she stopped selling pet products on Temu in March. “We sent them a few products to test, these products sold well, and Temu asked us to send them products in large quantities,” she says. “But after we spent money to get the stock ready and paid the shipping cost to ship to their warehouse, Temu asked us to lower our price.”
That sometimes means she’s being asked to sell at a loss, she says, but if sellers can’t meet Temu’s suggested prices, their products will be taken off the list. The cost of processing returns also often exceeds the value of the product being shipped, meaning that while US customers may feel they can return their goods without penalty, they are really pushing the issue back to the nitty-gritty. sellers.
After selling her existing inventory at a loss, Sandy closed her shop on Temu. She continues to be approached by Temu, who has asked her to send some of her top selling products to one of her warehouses, but she is no longer interested. “Whatever potential the Temu promises cannot make up for the losses I have suffered on this platform.”
