Temu and Shein face massive tariffs. But don’t count them out of the U.S. e-tail scene, experts say
Photo illustration of the Shein app on the App Store reflected in the Temu logo.
Stefani Reynolds | Afp | Getty Images
The closure of a trade loophole and prohibitive tariffs on China have upended Temu and Shein’s business model in the United States. And yet the e-commerce companies are likely to remain a dominant force in American online retailing, experts suggest.
On Friday, the de minimis rule — a policy that had exempted U.S. imports worth $800 from trade tariffs — officially closed for shipments from China. This has seen Temu and Shein exposed to duties as high as 120% or a flat fee of $100, set to rise to $200 in June.
The small-package tariff exemption had been key to the companies’ ability to maintain budget prices on the merchandise they ship from China. Now that it’s gone, prices on Temu and Shein have been surging, with the former ending direct shipments from outside the U.S. altogether.
The change will be welcomed by many detractors of de minimis, among them U.S. lawmakers, labor unions and retailers, who have argued that Temu and Shein abused the exemption to undercut local businesses and flood the country with illicit and counterfeit products.
But despite the new trade challenges that Temu and Shein face, ecommerce and supply chain experts told CNBC that the companies are still capable of competing with their rivals in the U.S.
“Don’t count them out … Not at all. These kinds of Chinese e-commerce apps are very adept and agile. They have contingency plans in place and have taken the necessary steps to cover the tariffs from a margin perspective,” said Deborah Weinswig, CEO and founder of Coresight Research.
“I personally believe, if anything, [America’s e-commerce] game has been accelerating in favor of Temu and Shein … I wouldn’t be surprised if the competitiveness gap actually continues to widen,” added Weinswig, whose research and advisory firm works with clients across tech, retail and supply chains.
Contingencies in place
The loss of the de minimis exemption had long been anticipated, with U.S. President Donald Trump temporarily closing it in February. In preparation, Temu and Shein had been accelerating localization strategies for the U.S.
Scott Miller, CEO of e-commerce consulting firm pdPlus, told CNBC that Shein and Temu will continue to onboard goods from American sellers onto their apps to protect them from tariffs.
“Many of the current sellers on Temu and Shein are located in China or countries nearby, but not all. Local U.S. companies have been joining these platforms at an accelerating pace … several of our clients have onboarded or began the process of onboarding in just the past few months,” he said.
While margins for more localized brands and other sellers won’t be as high as those for China-based sellers on the platforms, they can be competitive, he said.
He added that in the case of Temu, vendors are attracted to lower fees, lighter competition and greater assistance with onboarding and setting up sales channels compared with what Amazon offers.
In recent days, Temu, which is owned by Chinese e-commerce giant PDD Holdings, has begun exclusively offering goods shipped from local warehouses to U.S. shoppers.
Many of those goods are still sourced from China but then shipped in bulk to U.S. warehouses, according to experts. While these bulk items are subject to tariffs, they also benefit from economies of scale.
This development is likely to see the variety of products on Temu scaled back, said Henry Jin, an associate professor of supply chain management at Miami University. However, he added, Temu is likely to resume direct shipments from China, depending on the outcome of the trade war between the U.S. and China.
Shein, meanwhile, has leaned into supply chain expansion, building manufacturing operations in countries such as Turkey, Mexico and Brazil, and reportedly plans to shift to Vietnam.
The company appears to still be shipping directly from China and likely has more room to absorb tariffs because of its “sky-high” margins in its core fast-fashion business, Jin said.
“If there’s one thing that Chinese companies are good at, it’s operating on a razor thin margin in an intensely competitive, if not adverse environment … they find every scrap that they can to survive,” he added.
Competitive prices?
Contingency plans aside, experts agree that Trump’s trade policy will continue to affect prices on Temu and Shein. The companies first announced they were raising prices in mid-April to counter tariffs.
According to data from Coresight, prices across shopping categories on Shein rose between 5% and 50% in the latter half of April, with the sharpest rises seen in toys and games and beauty and health.
However, many e-commerce experts remain confident that Temu and Shein will continue to prove price-competitive.
Coresight’s Weinswig said the two companies have previously been able to offer products at a third of the prices on Amazon for comparable goods. So, even if they more than double the prices to absorb the impacts of tariffs, many goods could remain cheaper than those on American e-commerce sites and retailers.
Jason Wong, who works in product logistics for Temu in Hong Kong, noted this dynamic when speaking to CNBC last month, likening Temu to a dollar store. If prices at the dollar store go from $1 to $2, it’s still a dollar store, he said.
Furthermore, Trump’s trade tariffs on China and other trade partners have also affected American retailers and e-commerce sites like Amazon.
Other advantages
When Forever 21 filed for bankruptcy protection earlier this year, it blamed Shein and Temu’s use of the de minimis exemption, which it said “undercut” its business.
But experts say that exclusively attributing the success of Shein and Temu to that trade loophole misses many of the other factors that have made them smash hits in the U.S.
According to Anand Kumar, associate director of research at Coresight Research, Temu and Shein owe a lot of their success to their very agile supply chains that adapt fast to consumer trends.
For example, Shein’s small-batch production — in which product styles are initially launched in limited quantities, typically around 100-200 items — allows it to test and scale products efficiently.
Another key is the companies’ applications, which use various strategies to maintain user interest, including frequent phone notifications, product recommendation algorithms and perhaps most notably, constantly displaying discounted prices from promotions and flash sales.
Temu was offering a “mega savings extravaganza” for American consumers on Monday. Some of the bestselling items on sale included stainless steel hook earnings for $1.45 and a fitted mattress pad for $11.54. It’s unclear if the discounted local goods were stockpiled before tariffs came into effect.
In addition, app users will often be met with mini-games that grant different coupons or ways to earn rewards, as well as opportunities to buy “mystery boxes” with assorted products.
That “gamification strategy” definitely plays into the consumer psychology of many U.S. shoppers who often buy items out of the excitement of being able to get a great deal, said Miami University’s Jin.
Experts also flagged that Temu and Shein have been very effective at marketing, including through the harnessing of livestreaming and social media.
On the other hand, according to Coresights’ Weinswig, American retailers have failed to adequately recognize threats from Temu and Shein and adjust their supply chains and pricing models.
The U.K. and Germany are emerging as key hubs for a new wave of AI defense startups, as Europe scrambles to rearm amid rising geopolitical tensions.
Private funding for defense startups across the region has ramped up in recent years, with investors looking to tap into increasing government military budgets, driven by the ongoing Russia-Ukraine war and pressure from the Trump administration.
But it’s ecosystems in the U.K. and Germany that are seeing the most activity. The majority of the biggest rounds across the sector have been for startups based in those two countries, with both emerging as key launchpads into new markets and battlefield training.
David Ordonez, senior associate at NATO Innovation Fund, told CNBC that this was “thanks to the scientific expertise of their talent base, national commitments to treat this sector as an economic engine for growth and a manufacturing base that enables the rapid scaling of breakthrough innovation.”
‘Visible pathways to procurement’
Venture capital for European defense startups has spiked as members of the NATO military alliance have agreed to increase security spending to 5% of gross domestic product, and defense departments in London and Berlin have increasingly signaled a willingness to adopt new technology built by younger players in the market.
Investors, buoyed by the promise of commercial deals, have funneled a record $4.3 billion into the sector since the start of 2022, according to Dealroom — nearly four times the funds deployed in the previous four years.
Germany’s AI drone makers Helsing and Quantum Systems hit valuations of 12 and 3 billion euros this year, respectively, after rounds worth hundreds of millions of euros. In the U.K., manufacturing platform PhysicsX, which works with defense companies, raised $155 million this year, and missile interception startup Cambridge Aerospace reportedly picked up a $100 million round in August.
The U.K. government’s Strategic Defence Review in June proposed boosting spending on novel tech and streamlining procurement processes, as well as unveiling a £5 billion tech investment package.
“We see a system increasingly open to non-traditional primes, supported by wider investment in skills and technology,” Karl Brew, head of defense at Portuguese-U.K. drone startup Tekever, told CNBC.
Tekever, which became a unicorn this year, announced a major contract to supply uncrewed aerial systems to the Royal Air Force in May. Helsing has several contracts with the U.K. government, and U.S.-based Anduril signed a £30 million contract for its attack drones in March.
Tekever’s AR3 EVO drone undergoing pre-flight checks prior to being launched. Credit: Tekever
Germany announced its defense spending would rise to upwards of 100 billion euros — a record figure since the German reunification — from 2026, and also changed procurement processes to make it easier for startups to participate.
While most European governments have ramped up defense spending, Germany stands out as having “visible pathways from prototype to major procurement [for startups] that many other European markets still do not provide,” Meghan Welch, managing director at financial advisory firm BGL, told CNBC.
Helsing and attack drone startup Stark are both in line to win a contract for kamikaze drones, the Financial Times reported in October. Helsing and Stark declined to comment to CNBC about this.
Legacy infrastructure
Germany’s industrial heritage has also created talent pipelines and infrastructure that startups are tapping into.
“Germany has the industrial base, the infrastructure and the technical talent to produce the next-generation technologies NATO urgently needs,” Philip Lockwood, international managing director of Stark, told CNBC.
Founded in 2024, Stark is building attack and reconnaissance drones and has raised $100 million from investors, including Sequoia Capital, Peter Thiel’s Thiel Capital, and the NATO Innovation Fund.
Stark’s Virtus drone
“Many of Europe’s best engineers developed their expertise in Germany’s industrial and technological sectors, which have long led in hardware, software, manufacturing and supply-chain resilience,” Lockwood said.
The U.K.’s broader ecosystem is also a decisive factor in its appeal as a defense base, said Tekever’s Brew. “It brings together world-class universities and R&D centres with a dense network of aerospace, software and advanced-manufacturing suppliers,” he said.
Launchpads
Another key driver of defense tech in the U.K. and Germany is that both countries serve as launchpads into new markets or frontline training.
The U.K. has had a security and defense partnership with Australia and the U.S. since 2021, known as AUKUS, which has lifted certain export controls and restrictions on technology sharing between the nations.
“As part of AUKUS, the move into the UK was a natural entry point into Europe,” Rich Drake, managing director at Anduril UK, told CNBC.
Alongside signing contracts totalling nearly £30 million for its attack drones earlier this year, Anduril also has plans to open a new manufacturing and R&D facility in the UK.
Anduril UK’s Seabed Sentry. Credit: Anduril UK
“[AUKUS] allows us to work with the MOD [Ministry of Defence], align on operational needs and accelerate the deployment of leading autonomous systems in a context where trust, shared priorities and strategic alignment matter as much as technology,” Drake said.
U.S. defense startups looking to sell into European markets have also often chosen London as a base from which to expand across the region. Second Front Systems and Applied Intuition expanded into the country in 2023 and 2025, respectively.
“Given the history of the special relationship between the US and the UK, the UK serves as an excellent launching pad into the rest of the European market,” said Enrique Oti, chief strategy officer at Second Front Systems.
The U.K. can also serve as a base for European defense startups with global ambitions, added Dmitrii Ponomarev, product manager at VanEck.
“In practice the UK is becoming the interoperability testbed and politically acceptable landing zone for tech flowing in both directions,” Ponomarev told CNBC.
“If you can win a pilot with UK forces, comply with UK/US-aligned security and export regimes and operate in English with UK industrial and legal standards, you look much more ready to US primes, Department of War programs and AUKUS-related efforts.”
In 2025, some of Europe’s best-funded defense startups, including Helsing, Quantum Systems and Stark, announced factories, offices, or investments in the country.
Further east, Germany’s role as one of the largest donors of military aid to Ukraine has given the country’s startups a “front row seat for battlefield feedback,” said Ponomarev.
Quantum Systems has deployed its reconnaissance tech in Ukraine and Helsing announced in February it would produce thousands of strike drones for the country.
Despite the advances, analysts, investors and startup execs all caution there’s more work to be done to create the conditions for building global defense startups in the UK and Germany.
“Scaling remains difficult without continued political and procurement reform,” Ponomarev told CNBC.
“The UK still struggles with slow procurement cycles, clearance bottlenecks and a shortage of security-approved technical talent,” he added. Germany’s biggest obstacles are bureaucracy, strict export controls and heavy dependence on a single customer — the country’s armed forces, Ponomarev added.
BLG’s Welch said the winners of Europe’s AI defense boom “are likely to be companies that can master both the political economy, including export rules, alliances and public narratives, and the technology race, positioning themselves as enablers of national sovereignty rather than disruptors of it.”
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