Source: Blog – Alliance for American Manufacturing

Screenshot of Temu’s homepage captured on Dec. 22, 2023.

But it also was the year that policymakers began to take notice.

What do you remember about Super Bowl LVII?

Maybe it was the excitement of the back-and-forth game, eventually won by the Kansas City Chiefs. Perhaps it was Rihanna’s big halftime show, which included the reveal that she was pregnant.

Here at the Alliance for American Manufacturing, we will remember Super Bowl LVII for a commercial that debuted during the big game. The ad wasn’t particularly well-produced, and the actual content was not especially memorable. We aren’t talking Cindy Crawford drinking a Pepsi here.

But the ad was noteworthy because it marked the coming out of Temu, a Chinese e-commerce website that ships its uber-cheap products direct-to-consumer. Temu’s product line mirrors that of discount retailer Kmart in its sad, final years; Temu sells everything from electronics to tools to clothing to home appliances and more, all made by unknown brands and sold at rock-bottom prices. Quality isn’t guaranteed.

Still, Temu soared to great heights in 2023, topping the charts as the most downloaded app of the year.  It wasn’t the only Chinese e-commerce company that had a good year, either. Fast fashion titan SHEIN continued its metoric rise, overtaking mall mainstays like H&M and Zara to dominate the cheap apparel landscape, partnering with Forever 21 to reach even more consumers, and even filing for an IPO.

But while 2023 was a triumphant year for the two brands, it also may end being remembered as the moment when many U.S. policymakers finally noticed what was going on – and importantly, took the first steps to do something about it.

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The meteoric rise of SHEIN and Temu didn’t happen by accident. Both brands employed a host of bad practices to dominate the market, unfairly undercutting not only American manufacturers and workers but even rival importers.

And SHEIN and Temu are almost certainly breaking the law.

Both companies stand accused of terrible labor practices. At best, SHEIN and Temu are likely reliant on sweatshop labor for goods. But there’s plenty of evidence that both are utilizing forced labor in their product lines, too.

That means that both SHEIN and Temu should have their products scrutinized by U.S. Customs officials to examine whether they are in violation of the Uyghur Forced Labor Prevention Act (UFLPA), which bans all imports from the Xinjiang region in China due to the widespread use of forced labor. The UFLPA, which passed Congress nearly unanimously and quickly signed by President Biden, has already led to a crackdown in imports tied to forced labor in Xinjiang, most notably in the solar industry.

SHEIN and Temu have managed to dodge U.S. Customs inspections, however, because of their direct-to-consumer business model. Packages are small enough that they come through largely unnoticed.

The practice also has unfairly allowed the two brands to avoid paying tariffs. Temu and SHEIN have exploited a loophole in U.S. trade law known as de minimis, which allows imports valued under $800 to enter the U.S. duty-free.

That’s not what de minimis was intended for. It’s supposed to be used for tourists bringing souvenirs back into the country, or people ordering one-off items from overseas. Instead, these two mega brands have taken advantage to avoid paying their fair share of tariffs. When GAP or H&M import clothing on container ships, they pay tariffs — $700 million and $205 million in 2022, respectively.

SHEIN and Temu, meanwhile, paid $0 in tariffs in 2022, even though they sent 600,000 packages to the United States every day in 2022. That number almost certainly increased in 2023, given the success both brands saw in 2023.

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SHEIN and Temu both have big plans for 2024 and beyond. SHEIN clearly wants to go legit, aiming for its IPO in the new year. Temu, meanwhile, is planning another Super Bowl ad campaign.

But as we noted before, all of this success has finally caught the attention of lawmakers, who have voiced concern about the two brands’ reliance on forced labor and exploitation of de minimis.

The Select Committee on the Chinese Communist Party (CCP) unveiled a report in June that chronicled SHEIN and Temu’s bad practices, and in December the panel officially recommended reforming de minimis. There’s also several pieces of legislation in Congress that seek to fix the problem; at the Alliance for American Manufacturing, we back one put forth by Rep. Earl Blemenauer (D-Ore).

SHEIN’s big move to go public, meanwhile, has attracted a whole lot of scrutiny from lawmakers, who want the Securities and Exchange Commission (SEC) to demand proof SHEIN isn’t relying on forced labor before allowing it to move ahead. It’s worth noting that this criticism is bipartisan, with members of both parties calling for action.

There is another big factor playing into all this as well: TikTok. The Chinese-owned social media website has attracted massive scrutiny from lawmakers. This plays into SHEIN and Temu’s overall strategy, since marketing for both brands relies heavily on TikTok, allowing them to directly reach a consumer base of young people. Should the U.S. move forward with efforts to regulate or outright ban TikTok, SHEIN and Temu would lose direct access to a lot of their customers.

Oh, and there’s one more big twist in all this: Despite the fact that U.S. organizations like ours tend to group the two brands together, SHEIN and Temu are actually big rivals – so much so that Temu just sued SHEIN, accusing it of using “mafia-style” tactics to intimidate suppliers.

So, while the story of SHEIN and Temu is going to continue in 2024, we’ll be watching to see whether next year will be the year that the two companies begin to hit real roadblocks – and whether U.S. policymakers are prepared to do what it takes to hold the brands to account for their legion of bad practices.

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