Late last week, the US government proposed new laws that would force fast fashion retailers like Shein and Temu to pay tariffs on their products.
👉 Background: Temu, owned by Chinese company, Pinduoduo, has become the new, go-to marketplace for consumer goods. Although it only launched in 2022, it has over 167 million monthly active users.
👉 What happened: Until now, anything under $800 coming into the US has been duty-free, thanks to the “de minimis” rule. But late last week, the US government proposed new laws that would force fast fashion retailers to pay tariffs on their products.
👉 What else: This news dropped Pinduoduo's share price by more than 3%. On the other hand, the share price of Etsy jumped more than 5%. And this is a classic case of trade protectionism.
💡Trade protectionism is where a country looks to protect its domestic industries by restricting imports from other countries. And tariffs is one of the most used strategies of trade protectionism.
💡By making imported goods more expensive, tariffs can help level the playing field for local producers who may have higher production costs. But, they can also lead to higher prices for consumers...and may even lead to some global drama, a.k.a. trade retaliation.
💡In 10 years, the number of imports the US brings in duty-free has jumped from 140 million to over 1 billion - apparently due to increased shipments from Chinese e-commerce firms. Now, the US wants to level the playing field, but let's not forget, China might have a few moves up its sleeve too.
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