PDD’s US push with Temu is costing it dearly and angering some of its suppliers, but it’s out of necessity. As Chinese customers spend less, other e-commerce giants are pushing into Pinduoduo’s core markets, selling off-brand goods and trying to capture a less affluent demographic. This means that the company must look abroad. “Exploring the US market is the best and probably the only strategy that Pinduoduo can use when facing a saturated and overly competitive domestic market,” says Xi.
But the American market isn’t just tough; it is becoming increasingly risky for Chinese companies.
Temu currently benefits from a trade loophole that allows up to $800 in US duty-free shipping. By shipping small packages from its warehouse in Guangzhou to individual American customers, the company can sell duty-free in the US. But the small business lobby is pushing for that “de minimis” threshold to be lowered to $10. If that happened, Temu’s costs would skyrocket.
And as a Chinese-owned platform, Temu faces scrutiny from US authorities, who view data collection by Chinese companies as a national security threat. In April 2023, the US-China Economic and Security Review Commission issued a summary warning of data and supply chain risks associated with Chinese-owned e-commerce platforms, including Shein and Temu.
Calls to completely ban China-related apps have become commonplace in the US. In May, Montana became the first US state to officially ban TikTok, the social media platform owned by Beijing-based Bytedance. Last month, a CNN investigation revealed that the Pinduoduo app can bypass the security of users’ cell phones to monitor activity in other apps, check notifications, read private messages and change settings. While there is no evidence that Temu has similar data security issues, Montana Gov. Greg Gianforte has included the app on a list of technologies he says are “linked to foreign adversaries.”
“Western governments are very afraid of TikTok because it can control people’s thinking, but the address information and payment information stored in the Temu app are also very sensitive to the US government,” Lee says. The US government is concerned that the personal data of US citizens could be transferred to China for intelligence gathering. If Temu grows large enough, the US government may conclude that it has too much data on American users.
But behind these risks lies the possibility that the supply chain simply cannot sustain the low prices that people expect.
In China, some sellers have already given up. A big shift came in December 2022, when Temu began requiring manufacturers to bear half the cost of shipping products from factories to a warehouse in Guangzhou.
Sandy says she stopped selling pet products on Temu in March. “We sent them a few products to test, those products sold well, and Temu asked us to send them products in larger batches,” she says. “But after we spent the money to prepare the inventory and pay the shipping costs to send it to the warehouse, Temu asked us to lower the price.”
Sometimes that means being asked to sell at a loss, she says, but if sellers can’t meet Temu’s suggested prices, their products are delisted. The cost of processing a return is also often higher than the value of the product being shipped, meaning that while customers in the US feel they can send their items back without penalty, they’re actually pushing the problem back onto hard-charging sellers.
After selling the existing stock at a loss, Sandy closed her shop on Temu. She is still approached by Temu, who asked her to ship some of its best-selling products to one of its warehouses, but she is no longer interested. “Whatever potential Temu promises, it cannot compensate for the losses I incurred by selling on this platform.”
