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France sends combat troops to Ukraine battlefront Shmulik added that it's unclear if such a localization strategy is the best choice for the two firms as it may increase their costs and erode their current price advantage.
“It's hard for them to say 'We're increasing prices because we're diversifying selection and delivering goods quicker,'” he said.“These are not their value proposition.”
“Once the US consumers start to see the price gap between buying a specific good on Temu or Shein versus buying it on Amazon to narrow, their engagement and excitement about participating and continuing to increase their share of wallet going to these platforms will decrease,” Shmulik predicted.
'Shop like a billionaire'Last year, Shein was the most downloaded app in the US market's fashion and beauty app segment, registering more than 35 million downloads. It was followed by Nike with 15.2 million downloads and Poshmark with about 10 million.
Last year, Temu was the most downloaded iPhone app in the US with 103 million downloads, according to Appfigures . It was followed by TikTok with 52 million and TikTok's video-editing app CapCut.
The rise of Temu came after the company reportedly spent about $7 million on a 30-second TV advertisement during the Super Bowl in February 2023 to promote its slogan“Shop like a billionaire” to US consumers. In February this year, it ran a similar Super Bowl ad.
Last June, the US House Select Committee on the Chinese Communist Party said in a report that Temu and Shein are building empires around the de-minimis loophole in US import rules.
It said the two firms are responsible for nearly half of all de-minimis shipments to the US from China. The report also alleged Temu did not conduct any audits or set up a compliance system to affirmatively examine and ensure compliance with the UFLPA.
In a report published on April 14 this year, the US-China Economic and Security Review Commission said that some of Shein's products pose health hazards and environmental risks. It said Shein and several other Chinese fast fashion firms face many copyright infringement accusations and lawsuits for intellectual property (IP) rights violations.
Although US officials and lawmakers have in recent months highlighted China's alleged industrial overcapacity and government subsidization issues, it's difficult for the US government to use these reasons to ban Shein and Temu, according to analyst Shmulik.
“It's very difficult to ban Shein and Temu for something that is not tied to the supply chain, but to pricing tactics and subsidization, simply because a lot of their products come from the exact same facility that you are seeing on Amazon, as well,” he said.“The US government cannot be tough only on Chinese firms and skip others.”
“The best tool is the UFLPA,” he said.“If a law exists and you can prove some of the violations of it, it's going to be very company-specific. That's the way you can push regulations in the US.”
He also said it's very difficult to get new laws passed these days in the US, noting that the TikTok ban bill is an exception.
Fate of TikTokIn March, the US House passed the Protecting Americans from Foreign Adversary Controlled Applications Act, which requires ByteDance to sell TikTok to a US-based company within a year or the social media app will be totally banned from American app stores.
The Chinese Commerce Ministry's spokesperson He Yadong said the US side should earnestly respect the market economy and the principle of fair competition, and provide an open, fair, just and non-discriminatory environment for enterprises from all countries.
On April 24, US President Joe Biden signed the Act into law.
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Citing its sources, The Information reported on April 25 that ByteDance is internally exploring scenarios for selling a majority stake in TikTok's US business, probably without the algorithm that recommends videos to TikTok users.
But ByteDance denied the report and said it plans to file a lawsuit challenging the new US law on First Amendment grounds.
“When you touch on the First Amendment, it's unclear how things will play out,” Shmulik said.“What we heard is that ByteDance has no intention of letting TikTok get divested, particularly with the algorithm.”
Despite the passage of the law and a potential change of its ownership, TikTok can continue to grow if it can learn from Instagram Reels' algorithm.
“If I am following a creator on Instagram, I am almost [certainly] going to see videos from that creator,” he said.“It means that Reels is a better place for creators to monetize their follower-ship than TikTok.”
He said TikTok will eventually realize this and make changes, and it's only a matter of time before it can build a similar flow compared to Reels. He also said that the US e-commerce market is highly fragmented, leaving room for new players to grow.
Shmulik pointed out that the rise of Chinese e-commerce firms will not hurt the top line of key American players such as Amazon and Walmart but may put pressure on the margins for smaller ones like Etsy.
According to Statista, Amazon had an e-commerce market share of 37.6% in the US last year, followed by Walmart (6.4%), Apple (3.6%) and eBay (3%).
Read: US complains China hurts shipbuilding, steel firms
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