Online retail: Temu’s tax loophole
Temu, a Chinese e-commerce platform, sprang up seemingly overnight and is now “ubiquitous,” said Dan McCrum in the Financial Times. It’s spending billions on “blanket advertising” trying “to lure Western consumers to Temu’s app, where algorithms and AI anticipate their whims and desires.” By cutting out the middleman, and shipping packages directly from China’s factories, Temu undercuts even Amazon and Walmart on pricing. But almost everything about Temu is shrouded in secrecy. Its parent company, PDD, is a self-described “agricultural group” that shares no information about its business. The entire operation claims to have just 12,922 employees; Amazon, by contrast, has 1.5 million. The mystery extends even to workers, who “use pseudonyms and know little about other teams.”
But the key to Temu’s success is not a secret, said Andrew R. Chow in Time: It’s a U.S. tax loophole. Temu and Shein, the fast-fashion company, “now send almost a million packages a day to American consumers” from their Chinese warehouses “on the cheap.” Their main advantage is the 86-year-old de minimis rule, which lets them ship packages “without paying duty and certain taxes” as long as the value is under $800. That threshold was raised from $200 in 2016, and we’re seeing the impact. This doesn’t end with Temu. Some entrepreneurs say it’s now cheaper to move their warehouses to Mexico or Canada, import parts there, “then assemble them into products and send them via de minimis to the U.S.”
Temu shouldn’t even be allowed to sell its products in the U.S., said former Congressman Ryan Costello in Real Clear Policy. There’s an ongoing investigation into Temu’s use of Uighur Muslims enslaved by the Chinese government in the Xinjiang region of China, which would violate U.S. law. Temu “fails to respond to congressional inquiries” and “stonewalls journalists,” yet it spends billions “on flashy ads and high-profile influencers to distract from the truth.” This alarming behavior is “reminiscent of another company that has courted controversy given its Chinese roots”: TikTok.
We’ve seen companies like Temu before and they usually end up fizzling, said Leticia Miranda in Bloomberg. Temu’s meteoric rise echoes that of another “buzzworthy discount marketplace” out of China called Wish, which went public at a $14 billion valuation in 2020. Wish was “also able to offer low prices” by shipping directly from manufacturers. Wish similarly “said it would be profitable if it weren’t spending so much on marketing.”
Then French regulators determined “some Wish products were dangerous,” including “jewelry that had alarming levels of lead and cadmium.” Now, it’s the “butt of jokes” about poor-quality products. Temu is on a similarly short-lived trajectory.