Chinese companies work around Trump to keep selling to Americans

Last week, after Trump paused a provision for China imports that lets platforms avoid paying import duties and customs inspections on low-value packages, millions of packages were stuck at U.S. customs.

Fashion company Shein responded by increasing previous efforts to encourage suppliers to set up production in Vietnam, meeting with them to offer fresh incentives. Temu raised prices on its website and further pushed suppliers to store inventory in its biggest market, the U.S. Some Chinese suppliers have begun reconsidering ways to do business with the platforms.

Last week, Trump delayed his plan to end the so-called de minimis treatment for China shipments until U.S. officials can establish a system to process inspections and levies. Industry competitors nevertheless expect further disruptions that could upend the U.S.-China cross-border e-commerce industry, as they forge ahead with steps to counter the anticipated loss of the duty-free provision.

Singapore-based Shein denied it was making efforts to lure suppliers to produce in Vietnam. Temu, which is based in Boston and backed by Chinese e-commerce company PDD Holdings, didn’t respond to requests for comment.

Last year, companies sent small packages worth $46 billion to the U.S. from China under the de minimis exception, representing 11% of U.S.-reported imports from China, Nomura economists estimated. A 2023 report by a House committee on China said Shein and Temu accounted for more than 30% of all packages shipped to the U.S. daily under the provision. The Trump administration isn’t targeting de minimis shipments from other countries, which represent a quarter of trade under the provision, according to Baird Equity Research.

The exemption dates to 1930 and was originally aimed at helping American travelers bring souvenirs back from abroad. Under U.S. tax law, de minimis lets companies and individuals around the world send parcels to the U.S. with a value of $800 or less tariff-free. Its use has ballooned in recent years, with the flood of goods from Shein, Temu and others.

Some Shein garment suppliers are considering moving some production to Vietnam.

Without the provision, merchandise from these platforms would face tariffs of as much as 60% and additional customs fees, cutting into either the companies’ profits or their sales if they were to raise prices to offset higher duties, experts say. Packages could face a lengthy clearing process at U.S. customs, leading to higher operational costs. American consumers would see an average annual cost increase of $136 per household, according to research by Amit Khandelwal, a Yale University economist.

Last week, Shein called meetings with some top suppliers, offering interest-free loans and increased order placements with them if they were to agree to produce in Vietnam, people familiar with the discussions said.

Shein offered help with raw materials and logistics, such as shipping fabrics from China to Vietnam and helping with local hires. It has also encouraged suppliers to register as independent local entities or through a Hong Kong entity to avoid potential compliance risks in the future, the people said.

The U.S. flip-flop has encouraged Shein to speed up efforts to diversify its supply chain. The company in the past two years has set up manufacturing in Turkey and Brazil, and has recently started working with a partner in India to source and manufacture there.

Shein has also built logistics infrastructure and distribution centers in the U.S. and elsewhere. The company is planning to soon open a warehouse in the southern Vietnamese province of Long An, near Ho Chi Minh City, the people said.

A Shein garment supplier said it is considering several locations for a new factory in southern Vietnam, near Vung Tau, one of Vietnam’s major seaports. Shein’s Long An warehouse is expected to receive merchandise from China arriving at Vung Tau.

Smaller suppliers and merchants without the capability to transfer manufacturing overseas are in wait-and-see mode.

Wei Gangbing, a Guangzhou-based garment factory owner, said Temu raised the retail price of a piece of clothing he sells on the platform from $10 to $12 in the past week. He decided to pause production until trade resumes and there is more clarity on U.S. trade policies.

Vinci Zhang, an analyst at research and analytics firm M Science, said apparel and merchandise sold on Shein and Temu are 15% to 35% cheaper than their U.S. competitors, an advantage they risk losing with new duties. Economists at Capital Economics estimate the prices of products traded under de minimis would rise 25% if the program ends.

Temu and Shein suppliers and merchants are already struggling with margins of around 10%, compared with 15%-to-20% margins on Amazon.com. “There isn’t much room for more margin cuts," Zhang said.

Liu Dandan, a garment-factory owner based in Guangzhou, said she recently decided to stop supplying Temu and Shein because of low margins and the risk of being stuck with lots of unsold inventory. New U.S. tariffs on China and uncertainty over the fate of de minimis only reaffirmed that decision. “Many factories I know are considering the same move," Liu said.

To avoid losing suppliers such as Liu, Temu in the past week started offering some sellers higher wholesale prices to buy up their inventories. Temu also planned to temporarily offer more discounts and vouchers to U.S. consumers to keep them on the platform, people familiar with the matter said.

Temu has spent the past year taking on sellers for its local-to-local program, where merchants store inventory in local markets to be delivered to local consumers. The program is designed partly to hedge the risks of losing de minimis and higher China tariffs.

Temu and Shein suppliers and merchants face thinner margins than Amazon suppliers.

More than one-third of Temu’s U.S. orders are now fulfilled by sellers with inventory in the U.S., not through de minimis, according to people familiar with the matter.

In recent months, Temu’s representatives have told some Chinese merchants that they could enjoy more relaxed policies if they move inventory overseas. Goldman Sachs analysts expect Temu to accelerate its local-to-local program in the U.S. because of uncertainty on de minimis.

Liu Jiaxin, a Temu seller of rag dolls based in southern China’s Guangdong province, rented a small warehouse in Los Angeles in November. “Extra cost will be there," Liu said. “It’s just a matter of who’s going to bear this extra cost: me, Temu or American consumers." She said she believed having a local warehouse was a more sustainable way of doing business in the U.S.

Temu has in the past year sped up expanding in markets outside the U.S. and encouraged some suppliers to tailor designs for new markets. Temu has cut back on its online-marketing budget in the U.S. In 2023, Temu allocated 65% of its online advertising spending in the U.S., a figure that dropped to 47% last year as its spending in the rest of the world rose, according to market-intelligence firm Sensor Tower.

Wei, the Guangzhou garment-factory owner, said he started to see U.S. orders drop before the U.S. election. He has raised production for Asian and Middle Eastern customers on Temu’s advice.

Meanwhile, Temu has encouraged Wei to join its local-to-local program. But Wei isn’t considering the U.S. Rather, he plans to start with Japan.

“U.S. policies are too volatile, it’s too big of a risk to put inventory there," Wei said.

Write to Shen Lu at shen.lu@wsj.com, Raffaele Huang at raffaele.huang@wsj.com and Esther Fung at esther.fung@wsj.com