What: Chinese fast-fashion giants face critical business model challenge as Trump's tariff policies trigger price hikes and force 31% reduction in marketing spend while spurring manufacturing relocation efforts.

Why it is important: The convergence of trade barriers, manufacturing constraints, and reduced marketing capabilities threatens the foundation of Chinese e-commerce platforms' competitive advantage, potentially benefiting traditional retailers while transforming global supply chains.

The fast-fashion retail landscape faces a dramatic transformation as Shein and Temu confront unprecedented challenges from President Trump's new tariff policies. The elimination of the crucial de minimis exemption, which previously allowed duty-free entry for shipments under USD 800, has forced both companies to announce price increases starting April 25, 2025. The impact is particularly significant as Trump's response to China's retaliatory measures has led to tariffs rising from 30% to 90%, with further increases planned for June. This regulatory shift has triggered a surge in consumer stockpiling, with Shein's North American revenue jumping 38% in early April and Temu experiencing a 60% growth. However, both companies have significantly reduced their social media advertising spend, with Temu cutting 31% and Shein reducing by 19%. The situation is further complicated by Shein's pending London IPO, which now faces timing challenges amid the most severe trade tensions in years. This confluence of events suggests an inevitable impact on their price-sensitive Gen Z and Gen A customer base.

IADS Notes: The recent announcement of price hikes by Shein and Temu represents the culmination of escalating pressures on Chinese fast-fashion retailers. The warning signs emerged in October 2024 when Forrester predicted plummeting growth rates for both companies. This forecast proved prescient as Shein's IPO valuation was cut to $50 billion in February 2025, reflecting mounting concerns about their business model's sustainability. The situation intensified in March 2025 when BCG projected USD 640 billion in additional US import costs from Trump's tariffs, forcing both retailers to reconsider their strategies. The complexity deepened in April 2025 when China's Ministry of Commerce opposed Shein's attempts at supply chain diversification, leaving the company caught between international trade pressures and domestic constraints. The impact became evident in their marketing strategy, with both companies significantly reducing their US digital advertising spend in April 2025, signalling a fundamental shift in their approach to the American market. This series of events contextualises their current price increase announcement as part of a broader transformation in cross-border retail economics.

Caught at the sharp end of tariffs, Shein and Temu warn of price hikes