Temu and Shein are pivoting to Europe in face of U.S. tariffs. But they may not get a warm welcome
U.S. consumer spending on Temu fell about 36% in May compared to a year earlier, while it fell 13% over the same period on Shein, according to trend data from Consumer Edge.
Nurphoto | Nurphoto | Getty Images
Temu and Shein are pivoting to Europe as their business in the U.S. takes a major hit from unfavorable trade policies. But the China-founded budget e-commerce apps may not receive a warm reception in their new target markets.
In recent weeks, complaints have been filed against Temu and Shein in the EU, accusing them of unsavory business tactics. That comes as the bloc prepares a new two-euro flat fee on previously customs-free small packages from online marketplaces like Temu and Shein.
Experts say the new developments could be ominous signs for the platforms, as their business has already suffered from the May closure of a small package tariff exemption in the U.S., as well as new duties at 54%, or $100 for those sent through the postal service.
“As regulatory and trade pressures intensify in the U.S., Temu and Shein are increasingly turning to Europe and the UK as critical growth markets,” Anand Kumar, associate director of research at Coresight Research, told CNBC.
However, Kumar said that the companies have begun to face regulatory headwinds in Europe and the U.K. that echo the scrutiny they’ve encountered in the U.S.
“The EU’s proposed €2 customs fee is more than a minor surcharge—it’s a strategic regulatory move aimed at curbing the unchecked growth of ultra-cheap cross-border e-commerce, and it could reshape how platforms like Shein and Temu operate in Europe over the next 2–3 years,” he added.
Europe pivot
Temu and Shein have boosted their ad spending in Europe, particularly in the U.K. and France, according to a report from Reuters, reflecting their shift away from the U.S.
The growing importance of the EU and U.K. to the two companies has also been reflected in data from Consumer Edge Research, which traces consumer trends based on a sample of credit and debit card info.
According to the data it sent to CNBC, Temu’s consumer spending in the U.S. fell about 36% in May from a year earlier, while Shein’s fell 13% over the same period. The company added that its data shows that some of Temu and Shein’s U.S. customers have shifted their spending toward legacy department stores and fast fashion retailers.
Those trends coincide with data from market intelligence firm Sensor Tower showing that app usage of Temu and Shein in the U.S. is slowing significantly.
However, the opposite trends for the platforms were observed in the U.K. and EU. In May, year-over-year consumer spending growth reached 63% in the EU and 38% in the U.K. Shein experienced growth of 19% in the EU and 42% in the U.K. over the same period.
For Temu, Consumer Edge data showed that growth was especially pronounced in the key market of France, Europe’s second-largest economy.
To capitalize on the momentum in Europe, Temu and Shein have been aggressively expanding their operations across the region, including ramping up warehouse capacity, experimenting with localized business models, as well as significantly increasing digital ad spending in key markets like the U.K., France and Germany, according to Coresight’s Kumar.
“This expansion is not merely opportunistic—it signals a strategic shift in how these companies envision their next phase of growth,” he said.
“That said, the European market is not without its challenges. The region enforces stricter regulations on product safety, consumer protection, and fair competition, all of which require Temu and Shein to invest more in compliance and operational transparency,” he added.
Experts say that those challenges and the EU’s potential duties on small-value packages may be signs of more pressures to come for Temu and Shein.
Scrutiny intensifies
According to French local media, the wording of an “anti-fast fashion” bill, which is under debate in the French National Assembly, was recently rewritten to single out ultra-cheap platforms like Shein and Temu.
The bill, first approved by France’s lower house of parliament in March last year, seeks to penalize fast-fashion products for their environmental impact.
Meanwhile, on Thursday, the pan-European consumer organization BEUC filed a complaint with the European Commission against Shein over its use of deceptive techniques, or “dark patterns” that cause overconsumption.
That comes after the European Commission announced its own investigation into Shein’s compliance with EU consumer law in February and, in May, urged Shein to respect EU consumer protection laws.
BEUC has also filed a complaint against Temu, while 17 of its members filed the same complaint with their competent national authorities, the group said.
Xiaomeng Lu, director of geotechnology at Eurasia Group, told CNBC that the latest scrutiny Temu and Shein are experiencing in the EU is reminiscent of that in the U.S.
“[Temu and Shein] offer cost effective solutions and an efficient supply network that fare well in the fast moving fashion world. However their labor practices and human rights standards may not fully align with high value markets like the EU and U.S.,” Lu said.
That conflict and “rising protectionism” globally are the “key drivers of these regulatory reactions,” she added.
In the U.S., officials had also taken issue with Temu over its alleged non-compliance with the Uyghur Forced Labor Prevention Act (UFLPA), which prohibits the import of goods made with forced labor from China’s Xinjiang region.
According to Coresight’s Kumar, Europe, for its part, is progressing toward stricter oversight through the Corporate Sustainability Due Diligence Directive — which EU member states have until July 2026 to integrate into their national laws.
The directive would compel companies operating in the EU to identify and mitigate human rights abuses in their supply chains, disclose environmental impact and sustainability metrics and face legal consequences for failing to take adequate preventive steps.
That means Temu and Shein will face stringent compliance demands in the EU, Kumar said. However, the region still offers meaningful opportunities for expansion in an increasingly protectionist global trade environment, he added.
Sebastian Siemiatkowski, CEO and Co-Founder of Swedish fintech Klarna, gives a thumbs up during the company’s IPO at the New York Stock Exchange in New York City, U.S., Sept. 10, 2025.
Brendan McDermid | Reuters
LONDON — It’s been a busy week for the European technology sector.
On Tuesday, London-headquartered artificial intelligence startup ElevenLabs announced it would let employees sell shares in a secondary round that doubles its valuation to $6.6 billion.
Then, Dutch chip firm ASML on Wednesday confirmed it was leading French AI firm Mistral’s 1.7 billion-euro Series C funding round at a valuation of 11.7 billion euros ($13.7 billion) — up from 5.8 billion euros last year. Mistral is considered a competitor to the likes of OpenAI and Anthropic.
To cap it off, Swedish fintech firm Klarna on Thursday debuted on the New York Stock Exchange after a long-awaited initial public offering. Klarna shares ended the day at $45.82, giving it a market value of over $17 billion.
These developments have revived hopes that Europe is capable of developing a tech industry that can compete with the U.S. and Asia. For the past decade, investors have been talking up Europe’s potential to build valuable tech firms, rebuffing the idea that Silicon Valley is the only place to create innovative new ventures.
However, dreams of a “golden era” of European tech never quite came to fruition.
A key curveball came in the form of Russia’s 2022 invasion of Ukraine, which caused inflation to soar and global central banks to hike interest rates as a result. Higher rates are considered bad for capital-intensive tech firms, which often need to raise cash to grow.
Ironically, that same year, Klarna — which at one point was valued as much as $45.6 billion in a funding round led by SoftBank — had its market value slashed 85% to $6.7 billion.
Now, Europe’s venture capital investors view the recent buzz around the region’s tech firms as less of a renaissance and more of a “growing wave.”
“This started 25 years ago when we saw the first signs of a European tech ecosystem inspired by the original dotcom boom that was very much a Silicon Valley affair,” Suranga Chandratillake, partner at Balderton Capital, told CNBC.
Balderton has backed a number of notable European tech names including fintech firm Revolut and self-driving vehicle tech developer Wayve.
“There have been temporary setbacks: the 2008 financial crisis, the post-Covid tech slump, but the ecosystem has bounced back stronger each time,” Chandratillake said.
“Right now, the confluence of a huge new technological opportunity in the form of generative AI, as well as a community that has done it before and has access to the capital required, is, unsurprisingly, yielding a huge number of sector-defining companies,” he added.
Europe vs. U.S.
Investors backing the continent’s tech startups say there’s plenty of money to be made — particularly amid the economic uncertainty caused by President Donald Trump’s trade tariffs.
For one, there’s a clear discount on European tech right now. Venture firm Atomico’s annual “State of European Tech” report last year pegged the value of the European tech ecosystem at $3 trillion and predicted it will reach $8 trillion by 2034. Compare that to the story in the U.S., where the tech sector’s biggest megacap stocks combined are worth over $20 trillion.
“Ten years ago, there wasn’t a single European startup valued at over $50 billion; today, there are several,” Jan Hammer, partner at Index Ventures, which has backed the likes of Revolut and Adyen, told CNBC.
“Tens of thousands of people now have firsthand experience building and scaling global companies from companies such as Revolut, Alan, Mistral and Adyen,” Hammer added. “Crucially, European startups are no longer simply expanding abroad — they are born global from day one.”
Amy Nauikoas, founder and CEO of fintech investor Anthemis, suggested that investors may be viewing Europe as something of a safe haven market amid heightened geopolitical risks and macroeconomic uncertainty.
“This is an investing opportunity for sure,” Nauikoas told CNBC. “Macroeconomic dislocation always favors early-stage entrepreneurial disruption and innovation.”
“This time around, trends in family office, capital shifts … and the general constipation of the U.S. institutional allocation market suggest that there should be a lot more money flowing from … global investors to U.K. [and] European private markets.”
Problems remain
Despite the bullish sentiment surrounding European tech, there remain systemic challenges that make it harder for the region’s tech firms to achieve the scale of their U.S. and Asian counterparts.
Startup investors have been pushing for more allocation from pension funds into venture capital funds in Europe for some time. And the European market is highly fragmented, with regulations varying from country to country.
“There’s really nothing that stops European tech companies to scale, to become huge,” Niklas Zennström. CEO and founding partner of early Klarna investor Atomico, told CNBC.
“However, there’s some conditions that make it harder,” he added. “We still don’t have a single market.”
Several tech entrepreneurs and investors have backed a new initiative called “EU Inc.” Launched last year, its aim is to boost the European Union’s tech sector via the formation of a “28th regime” — a proposed pan-European legal framework to simplify the complex regulations across various individual EU member states.
“Europe is in a bad headspace at the moment for quite obvious reasons, but I don’t think a lot of the founders who are there really are,” Bede Moore, chief commercial officer of early-stage investment firm Antler, told CNBC.
“At best, what you can say is that there’s this secondary tailwind, which is that people are feeling galvanized by the need for Europe to … be a bit more self-standing.”
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