Source: Blog – Alliance for American Manufacturing
Screenshot captured on Feb. 14, 2023
Owned by PDD Holdings, an online company in China, Temu offers customers unbelievable deals — and a whole lot of risks.
There were many memorable commercials during the Super Bowl this year, from a Breaking Bad reunion to an M&M’s culture war spoof to multiple cameo appearances from celebrities.
But it was one of the less flashy big game ads that caught our eye here at the Alliance for American Manufacturing.
This one came from a newcomer to the Super Bowl ad game: Temu. The shopping app is among the hottest in America right now, offering users lightning sale bargains on everything from clothing and beauty products to tools and kitchen gear to electronics and toys. The app’s product offerings mirror Walmart or Target; there’s a lot of stuff there, and it’s super cheap.
If it seems like Temu came out of nowhere, well, it kind of did. Owned by Chinese conglomerate PDD Holdings (formerly called Pinduoduo), Temu quietly launched in the United States in September, aiming to follow the direct-to-consumer business model perfected by another Chinese company, SHEIN.
Like SHEIN, Temu cuts out the middleman by selling products straight from manufacturers in China and shipping them directly to consumers. And these products are cheap: When I took a quick peruse of the retailer’s website on Tuesday afternoon, Temu was offering a stainless steel handheld mixer for $1.89, a pair of rhinestone earrings for $1.88, and a five-piece grinding tool for $2.88.
But Temu is also just giving stuff away, offering credit to consumers who convince others to sign-up to the site via social media.
Thus far, Temu’s business plan seems to be working; as of Feb. 12, it tops the list of fashion apps according to rankings by similarweb, beating out SHEIN and retail giants like Walmart and Amazon.
But there are major concerns about Temu’s business model — and plenty of reasons for consumers to stay away from the app, no matter how great the bargains are.
Cheap Ain’t Cheap
We’ve spent a lot of time examining the bad behavior of SHEIN, the popular fast fashion retailer that earned its popularity thanks to another Chinese app, TikTok. There are many reasons that SHEIN is so problematic, from the fact that its products are likely made with forced labor to its lying about its business practices to impact on the environment and theft of intellectual property.
We did a whole episode of The Manufacturing Report talking about SHEIN; listen here.
Temu hasn’t been examined as closely as SHEIN, most likely because it is so new to the game. But many of the same worries we have about SHEIN also apply to Temu. And the same sort of policy needed to take on SHEIN’s bad practices likely would apply to Temu as well.
For one, there’s growing evidence any piece of clothing made in China is likely to be connected to forced labor in the Xinjiang region, where the Chinese Communist Party’s genocide of the Uyghur people continues. Hundreds of thousands of Uyghurs have been forced to work in Xinjiang’s cotton fields, and that cotton finds its way into clothing across the world. It’s fair to say that a garment made in China likely contains cotton produced by this forced labor, and the cotton finds its way into products produced in other nations, too.
Knowing this, there is a strong likelihood that the clothing sold by Temu — which is manufactured in China — is indeed made via forced labor. But at least some of the retailer’s other product offerings also could be made with forced labor, too. The Department of Labor keeps a running list of goods made with child labor or forced labor, and there’s a whole lot of Made in China items included.
The United States has tried to stop products made in Xinjiang from reaching U.S. shores. The Uyghur Forced Labor Prevention Act, which went into effect in June 2022, bans anything made in Xinjiang from entering the U.S. unless importers can prove their goods were not made with forced labor. U.S. Customs and Border Protection is now enforcing the law, reporting that in January 2023 alone, 282 shipments valued at more than $69 million were held “for further examination based on the suspected use of forced labor.”
But the direct-to-consumer business model allows companies like Temu and SHEIN to dodge these inspections, since goods are sent as individual packages and harder to track.
It gets worse: The companies don’t even have to pay tariffs on their goods, as they take advantage of a loophole originally intended to allow tourists returning from trips overseas to not deal with tariffs for souvenirs. Called de minimis, this rule states that shipments under $800 aren’t charged import taxes.
Since Temu and SHEIN are sending consumers packages that technically are under $800, they don’t have to pay the tax. But of course, that’s not what’s really happening. SHEIN captured around 30% of the fast-fashion market in the U.S. in 2021, according to the Wall Street Journal.
Seems like it’s time for lawmakers to close this loophole.
Sometimes Cheap Is Cheap
Of course, not all consumers care about human rights violations or loopholes in trade enforcement laws. There are bargains to be had, after all!
But even then, Americans should be leery of using Temu, SHEIN, and other Chinese direct-to-consumer apps.
There already have been complaints about the quality of Temu’s products, with TIME reporting that there had been 30 official complaints lodged with the Better Business Bureau, and the company had a BBB consumer rating of less than 1.5 stars. Here’s more from TIME:
Temu currently has a C rating on the BBB, and an average customer rating of 1.4 stars out of 5, albeit from only 20 reviews. (Complaints are separate from reviews, which do not factor into BBB’s official rating.) McGovern at the BBB says it’s unusual for such a new company to receive so many complaints in such a short amount of time. She notes that Temu has acknowledged and responded to every complaint posted to the BBB website, but many of those complaints remain unresolved.
Temu’s sister company, Pinduoduo, has long been accused of hosting sales of counterfeits, illegal goods, or products that do not match their descriptions. (Pinduoduo wrote in its SEC filings that it immediately removes unauthorized products or misleading information on its platform, and freezes the accounts of sellers on the site who violate its policies.)
Consumers looking to get their products quickly are likely to run into hurdles. Wired reports that because Temu is sending products directly from China, it is going to take them 7 to 15 days to arrive, longer than rivals like Amazon can offer. TIME, meanwhile, talked to several Temu customers whose orders arrived late.
Time to Level the Playing Field
Temu is selling a lot of consumer-targeted goods that for two decades have been made in China and sold to Americans at cheap prices. The difference is that those items used to be sold by companies like Walmart and Target; now Temu, SHEIN, and others are coming after those third party retailers.
Douglas Schmidt, a professor at Vanderbilt University, told TIME that if Temu catches on in the United States and is able to rival Amazon and others for significant market share, it could lead those retailers to drop their prices to compete. This race-to-the-bottom could hurt American manufacturing, Schmidt argued.
“This is an interesting example of the manufacturing base in China getting sufficiently sophisticated that it no longer feels like it needs to go through distributors. They’re selling directly to consumers. And there are a lot of people who are hurting economically and looking for a bargain,” he told TIME. “This is obviously going to put pressure on producers of goods to further slash their cost basis and profit structure—which could have the consequence of further eroding domestic manufacturing in the U.S.”
American manufacturers always have been at a disadvantage against imports from China. U.S. companies and workers abide by U.S. labor and environmental laws, after all; it’s impossible to play fair when your competitor is using forced labor to make its stuff.
But Temu and SHEIN are enjoying additional unfair advantages with their direct-to-consumer model. By not paying a tariff, their products are essentially given a cost break to enter the United States; even big box retailers like Walmart have to pay a tariff to import their products. And really, many of those products shouldn’t be entering the United States at all, given the likelihood that they are made with forced labor.
It’s time for policymakers and other officials to crackdown on this direct-to-consumer model deployed by Temu, SHEIN, and other Chinese brands. That effort should start by closing the de minimis loophole and extending enforcement of the Uyghur Forced Labor Prevention Act to these imports whenever possible.
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