Will Temu Kill Amazon?

According to a recent Bloomberg report, Temu’s sales in January 2024 grew by 805% compared to January 2023, providing a quantifiable measure of Temu’s rapid rise overseas.
Temu’s swift ascent overseas is certainly attributable to its own efforts, but it has also benefited from a U.S. tariff policy known as the “de minimis provision.”  This provision currently stipulates that any package delivered directly to an individual buyer valued at less than $800 can enter the U.S. duty-free.
U.S. Customs data shows that in 2023, as many as 1 billion packages entered the U.S. through the “de minimis provision”, double the pre-pandemic level of 2019. Of these, one-third of the packages originated from Temu and SHEIN, and given the growth trajectories of these two cross-border e-commerce players, this proportion is likely to only increase further.
Shielded by this provision, the already outstanding price-performance ratio of Temu and SHEIN has become even more pronounced, also heightening Americans’ awareness of the gravity of the issue.
In 2022, Democratic Congressman Earl Blumenauer stated that “Chinese companies are unfairly competing using the de minimis loophole.” Last year, Republican Congressman Mike Gallagher spearheaded a special report, asserting that “we should completely eliminate the tariff exemption.”

In February 2015, then-President Obama signed the Trade Facilitation and Trade Enforcement Act, dramatically raising the limit for the “de minimis provision” from $200 to $800. The initial intent of the Obama administration was twofold: firstly, to allow Customs to concentrate its limited tax collection costs on bulk goods, generating more tariff revenue for the Treasury; and secondly, to promote the rapid and robust development of e-commerce.
The driving force behind this policy was none other than Amazon. After all, in the U.S. environment where Amazon was the dominant e-commerce player, promoting e-commerce development was tantamount to promoting Amazon’s development.
At the time, Amazon was heavily onboarding third-party sellers, leading to a steady stream of packages entering the U.S. from abroad. In an email to other executives in 2015, Sebastian Gunningham, then-Senior Vice President of Amazon Marketplace, wrote: ” One of the themes is Chinese factories who made stuff for Walmart and the likes for the past 20 years now realize they have shot at building a brand themselves and selling directly to the world, without the intermediary…and we are that vehicle.”
Early Amazon sellers were not yet familiar with overseas demand, often opting for the low-risk, fast-payment model of “small package direct shipping.” The “timely” increase in the de minimis threshold gave Amazon’s third-party merchandise a swift price advantage.
The low prices attracted more consumers, in turn drawing more sellers onto Amazon, accelerating Bezos’ “flywheel” theory. Whereas a decade ago there were fewer than 15,000 Chinese merchants on Amazon, that number now exceeds 1 million.
In 2014, Amazon’s net sales revenue was less than $89 billion; by 2018, this figure had risen to $232.9 billion. During the same period, Amazon’s market capitalization skyrocketed, becoming the second company after Apple to reach a $1 trillion valuation in September 2018.
As the primary beneficiary of the “$800 provision,” Amazon not only drove the policy’s creation, but also invested heavily to ensure its continuation.
From 2012 to 2017, Amazon’s lobbying expenditures increased fivefold. In 2018, Amazon had the largest lobbying office in Washington among all tech companies, with a team that included 4 former members of Congress, fully leveraging the revolving door. Bezos himself visited Washington nearly 10 times a year, an even higher frequency than his presence at Amazon’s Seattle headquarters.
There is ample evidence supporting the close relationship between Amazon and the Obama administration. For example, Bezos has long been a major donor to Obama’s personal foundation, and in 2016, Bezos spent $23 million to purchase a property in Washington D.C.’s Kalorama neighborhood, the same community the Obamas moved to after leaving the White House. During his tenure, Obama also visited Amazon warehouses, heaping praise on the company.
In its relentless efforts to deepen its competitive moat, Amazon inadvertently opened a backdoor for its rivals.

The Rise of Chinese Cross-Border E-Commerce Platforms

During the 2020 pandemic, the independent fashion brand SHEIN quickly scaled up by adopting a “small order, fast return” model, with its GMV exceeding $10 billion for the first time. In 2022, Temu gained huge popularity in the U.S. market thanks to its favorable price-to-value ratio.
Both platforms use small-package direct shipping, with product categories focused on apparel and small accessories. Their average order values are relatively low, $80 for SHEIN and under $50 for Temu, well below the $800 de minimis threshold for duty-free imports.
The flotilla of Chinese cross-border e-commerce players has sailed across Amazon’s defensive moat. In response, Amazon has proactively withdrawn from the protection of the “$800 rule”.
Starting in 2018, Amazon ramped up its FBA (Fulfillment by Amazon) model, where sellers first ship their goods to Amazon’s U.S. warehouses, and Amazon then handles sales, customer service, warehousing, delivery, and after-sales, enabling local fulfillment for the sellers.
The key change in this model is the consolidated shipping, which requires proper customs clearance and taxation. Although this increases order costs, Amazon gains two main benefits:
1) Capturing more revenue from sellers
With Amazon handling all the warehousing, logistics, and after-sales, the fees naturally rise. To incentivize sellers to use FBA, Amazon provides higher search rankings for FBA merchants. Fearing slower shipping and Amazon’s algorithms, 89% of sellers now use FBA.
Research shows that in 2019, Amazon earned $60 billion from seller fees and ads, which doubled to $121 billion in 2021, equivalent to 34% of total seller revenues. In other words, for every $100 in seller sales, Amazon collects $34 in platform fees.
2) Improving fulfillment service quality
After years of capital investment, Amazon now has 102 fulfillment centers across the U.S. and its own delivery network, enabling 1-2 day or even same-day shipping.
This ultra-high logistics efficiency undoubtedly strengthens customer loyalty and leaves competitors far behind. By 2022, Amazon dominated 37% of the U.S. e-commerce market, while its largest competitor Walmart had only 6%.
Perhaps Amazon never expected that the backdoor it left would allow Chinese competitors to successfully follow suit. Although Temu and SHEIN’s shipping times often exceed a week, their $3 dresses and $8 Bluetooth earphones are still a hit with American consumers.
By December 2023, Temu had 467 million independent visitors, second only to Amazon globally. A Forbes article described a rural Pennsylvania mailman who had never heard of Temu just months earlier, but now delivers at least 20 Temu parcels per day.
Harvard Business School marketing professor John Deighton bluntly stated, “Amazon is facing its first real competition ever”.
Awakened U.S. policymakers have reacted, with Democratic Congressman Earl Blumenauer, who had previously voted to support the “$800 rule” in 2016, now proposing legislation to exclude Chinese goods from the provision.
However, the problem is that even if the rule is lowered or eliminated, it may be unable to stop the expansion of Temu and SHEIN.
The Declining Significance of the ‘$800 Rule’ in the Face of Chinese E-Commerce Growth

The ‘$800 rule’ has indeed catalyzed the growth of Chinese cross-border e-commerce, but it has never been the core driving force. Accompanying the rapid expansion of Temu and SHEIN, the role of this rule has become increasingly limited.
According to the data cited in the Forbes report, even after accounting for the 12.5% tariff on apparel, Temu still maintains a nearly 60% price advantage over Amazon, which is enough to captivate consumers.
In the European market, where Amazon has been deeply rooted and highly adept at collecting tariffs, Temu has also seen rapid growth. A survey by the market research platform Appinio shows that in the second half of 2023, a quarter of Germans had already become Temu users，a remarkable achievement in just 9 months since Temu’s entry.
Within Temu’s fully-managed model, the platform directly connects with a large number of factory sellers, cutting out intermediaries to compress supply chain costs and enable lower prices. SHEIN has likewise linked up with a multitude of garment factories, even penetrating the material supply segment.
In comparison, the majority of Amazon sellers are still trade intermediaries, adding an extra layer of distribution. Moreover, Amazon sellers not only incur high platform fees but also have to set aside costs for unsold inventory shipped overseas. As a result, Amazon’s product markup rates are typically multiple times higher.
Additionally, in terms of cost control, Amazon’s Chinese counterparts have more room for flexible adjustments. Temu’s current long-haul transportation is largely through costly air freight, but it is reportedly exploring ocean shipping via fast vessels, which could potentially reduce logistics costs by 30% to 60%.
This would allow Temu to profitably introduce higher-ticket items like large home furnishings that were previously unfeasible via air freight. Compared to the competitive landscape on the business front, the ‘$800 rule’ seems more like a bargaining chip for Washington politicians to grandstand on China-related issues.
In 2023, two out of the three China-focused specialized committees in the U.S. Congress have been scrutinizing the “loopholes” in the “de minimis rule”, issuing warnings to Temu and SHEIN about their tax-free operations.
However, Temu has boldly stated to the media that it supports adjusting the “de minimis rule”, as long as the changes are fair and consumer-friendly. SHEIN’s Executive Chairman, Donald Tang, even called for a “complete overhaul” of the de minimis rule last year, which was seen as highly insulting.
In its 2023 global expansion, Temu has nearly completed setting up operations in all European countries. And amid last year’s capacity constraints, Temu prioritized directing inventory to markets outside the U.S., with the European market now accounting for 40% of its business, exceeding the 37% share of the U.S. market.
For Chinese cross-border e-commerce, the world still seems large enough to maneuver and thrive.