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US-China trade war weighs on e-commerce platform Temu

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De minimis exemption helped Temu and rival Shein keep

prices low

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Temu's daily US users fell 48% in May compared to March,

according to Sensor Tower

By Casey Hall and Arriana McLymore

SHANGHAI/NEW YORK, June 2 (Reuters) - Daily U.S. users

of PDD Holdings' ( PDD ) global discount e-commerce platform

Temu fell by 48% in May compared to March, according to market

intelligence firm Sensor Tower, one of many headwinds the

e-retailer is facing amid a U.S.-China trade war.

Temu decided to slash ad spending in the U.S. and shift its

order fulfilment strategy after the White House on May 2 ended

the practice known as "de minimis" - which allowed Chinese

companies to ship low-value packages to the United States

tariff-free.

Temu, along with fast-fashion giant Shein, had utilised that

provision for years to drop-ship items directly from suppliers

in China to consumers in the U.S., keeping prices low.

Both Temu and Shein have suffered a sharp drop in sales

growth and customer growth rates since U.S. President Donald

Trump announced sweeping trade tariffs, according to data

collected by consultancy Bain & Company, but Temu's trends have

been worse than its rival.

Tariffs forced both platforms to raise prices, but Shein has

been able to increase the amount of money spent per customer

compared to a year ago, the data showed, while Temu has

struggled.

Temu did not respond to a request for comment on the drop in

U.S. daily users or the headwinds it faces in the U.S. market.

Engagement on Temu has dropped significantly following the

end of the exemption, Morgan Stanley equity analyst Simeon

Gutman said in a May note.

"While the tariff environment is uncertain, if the status

quo remains for an extended period, we believe Temu's

competitive threat will continue to weaken," Gutman said.

Last week, PDD's first quarter earnings fell short of growth

estimates and executives told analysts on a post-earnings call

that tariffs had created significant pressure for its merchants.

They reiterated Temu's earlier pledge to keep prices stable

and work with merchants across regions, referring to a shift to

a local fulfilment model announced at the start of May.

Temu's previous business model gave merchants responsibility

for ordering and supplying their products while the China-based

company managed most of the logistics, pricing and marketing.

Now, Temu's merchants "can ship individual orders from China to

Temu-partnered U.S. warehouses but they would need to address

tariffs and customs charges and paper work," according to a note

from analysts at HSBC. Temu continues to handle fulfilling

orders close to shoppers, setting prices and online operations.

In last week's note, HSBC said that Temu's growth in

non-U.S. markets has picked up, with non-U.S. users rising to

90% of its 405 million global monthly active users in the second

quarter.

"New user uptick grew swiftest in less affluent markets,"

analysts wrote.