The US Postal Service has suspending inbound international packages from China and Hong Kong Posts, delaying or blocking shipments from giant online retailers, and Amazon competitors, like Shein and PDD’s Temu. USPS said letters and flat mail from China and Hong Kong would not be affected, according to a statement on its website.
Potential reasons behind the suspension could be to ensure the tariff is enforced and not bypassed by potential loopholes such as exporting multiple packages of smaller value items (see more here). While it’s not clear what prompted the move, it followed Trump’s decision to revoke a “de minimis” rule for China, which previously allowed small packages under $800 to enter the US duty-free. This exemption, often used by Chinese-linked e-commerce companies, was removed as part of a new 10% tariff on goods from China and Hong Kong, which took effect just after midnight Tuesday Washington time.
Washington is cracking down on a loophole that retailers like Temu and Shein have used for years to expand in the US, allowing them to ship high volumes of small packages and gain an edge over competitors like Amazon.com Inc. Critics say the flood of parcels from China is difficult to track and may contain illegal or dangerous goods.
According to US Customs and Border Protection data quoted by Bloomberg, the total volume of de minimis shipments into the US hit 1.4 billion packages in fiscal year 2024, about double the number in 2022. Predictably, discount online retailers like Temu and Shein contributed significantly to the spike in volume.
However, disruptions from the move may be more limited now than it would have been in previous years, as other postal operators have taken over the USPS’s role in handling cross-border lightweight e-commerce packages, including those from China, according to a US Office of Inspector General report in May 2023.
US officials have alleged that parcel mail, direct from China and via third-party countries, is a gateway for illicit drugs, including deadly fentanyl. “What the cartels in China have done is exploit that loophole to smuggle in not just fentanyl but all sorts of drugs,” White House trade adviser Peter Navarro told Politico in an event in Washington Tuesday.
The China tariff order took effect even as two others, for Mexico and Canada, were put on hold. Trump has hinted at a possible call with Chinese leadership this week, though details remain unclear. While the White House has not ruled out a deal to pause the Chinese tariffs, which could also impact the Postal Service’s ban, nothing has been confirmed yet.
Shares of Alibaba fell more than 2% in Hong Kong, while JD.com tumbled more than 5%, while the Hang Seng China index losses also extend, down 1.8% now.
In a Goldman note published late on Tuesday, the bank tried to assess the impact of Trump’s removal of the de-minimis exemption on China’s e-commerce platforms, where PDD’s Temu has the highest US exposure amongst China cross-border players. Here are some of the highlights from the report (full note available to pro subs in the usual place).
For PDD, US contributes to around ~40% of GMV for Temu, while Temu was a 10% loss drag to PDD group profit in FY24E (and with minimal valuation implied by PDD’s current market cap). Despite the new regulations, Goldman believes cost advantages of eCommerce platforms vs. US offline retailers will continue given the lower cost structures for online businesses (fewer layers between factories and end consumers), while Chinese platforms will continue to diversify their merchant bases beyond China to local merchants.
- An evolving Temu business model and global diversification prior to these developments in tariff policy development, where Goldman has seen:
- 1) Temu’s geographical diversification with the US contribution to Temu’s global MAU from 100% at the time of launch in early-2023, down to its latest at 15% of Temu’s global MAU as of Dec 2024 as per the latest eCommerce tracker, with fast expansions in South America and the Middle East;
- 2) Temu’s ongoing US business model evolve from full-entrusted model (direct air freight shipments that enjoy de-minimis exemptions), to a rapidly growing semi-entrusted model that has recently reached 25% of Temu US GMV as of Sept-2024 (where merchants ship products by sea freight under traditional trade ahead of time); and,
- 3) Temu’s business model has expanded beyond air freight direct shipments, with the semi-entrusted models launched in 19 countries as of Jan-2025 that do not depend on de-minimis.
- The limited value that has been ascribed by the market to the Temu business in PDD’s current market cap, as investors have been anticipating pending regulatory clarity around U.S. tariffs, multiple countries’ de-minimis rules, personal data, etc. before being willing to ascribe any meaningful value to the Temu business, despite the fact that the Temu app reached 350mn MAU in Dec 2024.
Looking ahead, the key to watch will be any further tariffs/tax applied for cross-border eCommerce goods, and development of any risks related to targeted tariffs on China imports/app bans/expansion of the Uyghur Forced Labor Prevention Act (UFLPA) Entity List etc. that could pose a potential impact to Temu’s US operations. Meanwhile, Goldman expects ongoing geographical diversification away from the U.S. and business model shifts, including further expanding the launch of its 3P marketplace to local US merchants (local-to-local sourcing) and semi-entrusted model for cross-border eCommerce platforms. Of course, none of that will help Temu if other countries piggyback on similar sanctions as the US.
More in the full Goldman note available to pro subs.
Tyler Durden
Tue, 02/04/2025 – 23:49
