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Hey there's Spencer. How's it going?
Hi?
Good, Bloomberg.
Spencer Soaper has been covering e commerce companies like Amazon and eBay for more than a decade, and recently he's been following one shopping app super closely, Tamu and Spencer. Do you shop on Tamu?
Yes, yes I do.
Do you what do you buy?
Just some random things. I got some motion sensing lights for under the cabinets in the kitchen, and then I've also got some gardening supplies like drip irrigation things.
Tamu is an e commerce marketplace owned by the Chinese company PDD. It started selling in the US in twenty twenty two, and it's been growing fast, so fast that it's now the second biggest online shopping platform, right after Amazon.
Yeah, it very quickly became the most downloaded shopping app in the US.
Yes.
I think the last numbers I saw were fifty million active monthly users.
One key reason that Tamu is able to win over so many US customers is its competitive pricing. Products on Tamu are usually much cheaper than anywhere else, and Tamu is able to price its goods lower, largely thanks to something called the deminimus rule, also known as.
This deminimous loophole, which means any one person in the US can bring in anything worth less than eight hundred dollars without paying tariffs on it. So since Timu is doing a direct to consumer shipping model from China, they can slip in without paying any kind of tariffs, and those can be twenty five to thirty percent, and it looks like they're going to go even higher.
In Latin deminimus loosely translates to too small to matter. It's a tax rule from the nineteen thirties that was originally created to allow Americans traveling overseas to ship back their souvenirs duty free.
If you're coming home from a vacation to another country, you have some gifts in your suitcase, you know they don't want customs officials getting bogged down charging tariffs on that. But now this is applied to e commerce and cross border e commerce.
But earlier this month, President Donald Trump took aim at this near century old rule, the Minimus room.
Now that is being revoked by Trump and numeris saying it could cost China about one point three percent of its exports growth and about zero point two percent of its GDP, So pretty significant given that these small puzzles may come about eleven percent of China's exports to the US.
A lot of these supplies were extremely shocked by how sudden and chaotic this happened to them.
Rachel Chang is Bloomberg's Managing editor for Global Business in Asia.
That's definitely a chilling effect because the draw of these places are how super cheap they are. Once you'd lose that cheapness, once this added costle, added fees, you know, of course, that attractiveness goes away.
And one Chinese merchant tells us that closing the tax loophole has huge consequences for some Chinese manufacturers and retailers.
Jimmy, sure they can basically close overnight.
Welcome to the Big Take Asia from Bloomberg News. I'm Wanha. Every week we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever shifting region. Today, on the show the Deminimus and what does closing it mean for Chinese e commerce giants like Tamu and their American Customers Spencer For people who aren't familiar with tamu, can you start by telling us what this app does?
So Tamu is like a discount store in your phone. So you download the app, and when you go in, before you even get a chance to look at anything, you're likely going to see a prize wheel or some sort of like maybe like an egg, and they'll say, ooh, prize for you, and they'll already start kind of bombard you with deals and discounts.
Tamu launched in the US in September twenty twenty two with relatively little fanfare, and a few months later, its parent company PDD jumped at the chance to introduce itself formally to US consumers an event that they knew would get the attention of millions of eyeballs, the Super Bowl.
They had a Super Bowl commercial in twenty twenty three where they really poked at people's curiosity and it really took off. It was an immediate hit. And they had this campaign shopped like a billionaire, like meaning like it doesn't matter how much money you have, you can shop like money snow object because our deals are so good.
Like besides going big on the Super Bowl. Spencer says, Tamu came to the US at the right time.
We had just come out of the pandemic, so so a lot of people grew really accustomed to shopping just about anywhere online and experimenting with new sites they weren't necessarily familiar with. That used to be something people were a little hesitant about. And also we had hyperinflation, and so people were just looking for deals. So tim we really stood out with bargains at the right time when people were just grappling with higher costs for groceries and everyday expenses, that sort of thing.
If you open Tamu now you can find things like a six dollars Apple Watch look alike or a twenty dollars mini Arcade claw machine, And if you buy more, the app often offers an even bigger discount or throws in freebies with your orders.
The big thing about it is discounts. You know that the prices are very low, so you're likely to find items at cheaper prices than you could find at a store near you, if you could even find the item near you or on competing marketplaces in the US like Amazon or eBay or Walmart. A lot of things could maybe be like half as much as on Amazon or less, and on TikTok.
There's tons of videos where people talk about their Tamu hauls.
Why do you like to waste money?
Why are you not checking Timu before.
You buy stuff?
Let's not get duped.
Let's buy the dupe.
And the reason Amazon customers are paying a lot more for similar or sometimes even the same item, Spencer says the markup largely reflects the cost of fast delivery.
So Amazon is all about speed two day delivery, one day delivery, same day delivery, and most of their items bundled around that without a consideration to say, you know what, I'd rather get it for less if I can wait a little longer. Timu's saying, hey, if you can wait seven days, ten days, we'll get you a really good deal on this item. So that's the trade off for the shopper. But what Timo's really shown is, hey, people are willing to be patient for a deal.
Another factor that helped fuel Tamu's rise in the US Donald Trump himself. Trump imposed a host of tariffs on China during his first term, and that raised the cost for exporters, but he left one thing untouched. The dominimous rule. Now most of the world has versions of Dominimus, but the US is the most generous, up to eight hundred dollars per package, and that became a loophole for Chinese merchants to ship lots of goods into the US duty free.
Most things, when you purchase them on Amazon, they're already in the United States in a US warehouse, So that means they were shipped on big cargo containers by ocean, and then they're paying tariffs when they come into the US through port, whereas Tamu they'll have facilities in China where they actually take a customer's order and put it
into an individual package. You're doing that order fulfillment in a warehouse in China where labor is cheaper, put it on an airplane and fly it into the United States. Through what's called the deminimous loophole. In the US, you're not paying tariffs on the goods coming in.
The Dominimus benefited not just but also other Chinese e commerce giants like fashion retailers she In.
Tamu and Shean have really driven a huge rise in the volume of shipments entering the US. Through this loophole, and it's something like one point four billion in twenty twenty four, which was four million packages a day. It's more than tripled over pre pandemic levels.
This year, TEMU is estimated to earn thirty billion dollars in US sales, a milestone that took Amazon more than a decade to reach. But now that forecast is under threat.
President Trump said, We're going to close this demnimous loophole. And that was a big shock to the system. That's going to affect companies like TAMU and she In, and it's set off a scramble and a lot of people were just confused and not sure what it meant.
A few days later, Trump reversed his order to revoke the Deminimus rule and delay the suspension. He said he wanted to give agencies more time to come up with adequate systems to quote fully and ex commediately process and collect tariff revenue.
Yeah, you're going to need you're going to need a system in place. You're going to need infrastructure. You're going to need rules on how to handle this volume and how they're going to screen it and apply the appropriate tariffs. You can expect major changes in how these goods flow into the US.
While the US Customs figures out a way to process and tax the hundreds of millions of parcels from China, Chinese manufacturers are working on contingency plants. That's after the break. On February first, President Donald Trump proposed new ten percent tariffs on all Chinese imports, and he ordered the suspension of the Dominimus rule for goods from China and Hong Kong. Almost immediately, big e commerce platforms took a hit. Here's Bloomberg's Rachel ching again.
We saw traffic in the following five days for both she and Temu drop off. So she and US sales fell sixteen to forty one percent for that period, while Tamu saw a fault as much as thirty two percent during that period.
That's a huge drop.
Yeah, I mean.
Early part of the year is generally a bit lower than pre Christmas, like sort of Black Friday sales push. But in terms of looking at these drops, there's obviously an immediate chilling effect from consumers right who may be a bit uncertain as what this means. If I buy five hundred dollars worth of stuff from Tamu. Am I now on the hook for customs duty on that.
Yep, they lose their advantage there. Now, if I'm a Chinese retailer or a manufacturer who sells my products on Tamu, what does the closing of diminus loophole mean for me?
So, you know, Chinese reporters talking to these factory owners right from the beginning, they were already seeing their logistics agent, which as companies that helped them get their goods from one step to another, immediately asking for thirty percent higher payment to cover what those additional costs might be. There's just so much chaos around the how this rule will be implemented, so we know for sure that would just be a lot of higher costs for these vendors in the medium term.
To get a closer look at this chaos, we called up one of these logistics companies. Andy Guo is CEO of her non Taidea. He's been helping Chinese factories and retailers sell their products overseas since two thousand and nine. His company has operations all over the world. But who says that the US market until recently was probably the most promising.
You're not.
The US is indeed a great profitable market, but on the other hand, it is also an obvious market, so everybody wants a piece of it, and the competition is.
Intense, who says. After COVID, the competition came even more cutthroat, and governments around the globe started to encourage companies to localize their operations.
What does it mean to localize your operation? It means that if you want to expand in the US, you need to register your business in the US and pay your tax to the US locally. This localizing trend is getting stronger these years for e commerce businesses.
Quo says his company moved on this trend early on during COVID, when shipping prices were skyrocketing. They acquired business
licenses and established warehouses in the US. That means the products he helps sell are stored in the warehouses and can reach customers faster than smaller retailers who directly ship from Chinaquo says his business has never relied on the deminimus rule because the company ships products in bulk to the US, so instead of sending small packages under eight hundred dollars, the company has been paying tariffs from the get go, and that's already actored into its pricing, which
is still competitive, he says, and that's why Gho's company is more or less insulated from the latest fallout.
We don't ship a lot of small packages directly from China, so we are less affected by this new policy. But those companies who do, they can basically close overnight.
Guo told us that closing the Deminimus is a shock to the retailers who compete solely by price and rely on the loophole to make a profit.
That means for platforms such as alex Press, Tamu, and she all this marketplaces that rely on low prices, they are taking a major hit. Trump actually understands them very well. They're able to keep the prices so low because of China's cheap labor, and that's exactly what the US wants to hit take Trump.
Quo says his logistics business can manage the changes Trump wants to put in place, but he questions if the US and a American consumers will ultimately come on top.
These higher costs eventually go to the customers. Just raise the price, right, But mating China can not happen in one year or two and Trump says he's doing this to bring manufacturing back to America. I don't think that's going to happen overnight either.
Groo says removing the deminimus could help drive Chinese factories to improve the quality of their products. He says closing the loophole will certainly remove the incentive to use cheap labor at least And Rachel says removing the old loophole is a watershed moment for e commerce from China.
If you look at the kind of stuff that you got off Tamu for those sorts of prices, right, I think sometimes a lot of people would just questioning, like is this normal that you're able to buy all these sorts of things so like literally like a dollar and get them shipped from China? Right, Because if you're relying on the loophole to build a huge business, then is that business going to be able to be sustainable in
the long term. Is that something that is a good business model that can be profitable or was it being subsidized by all of these non market forces that ultimately would disappear. And I think we're at that moment of reckoning right now.
And Rachel, what do these changes mean to American consumers who love a good deal.
I think what these changes mean really is higher prices and less choice. And we know that inflation is hitting American consumers from all directions. Right, Eggs unaffordable now because of what bird Fool is doing. So there's just likely to be a pullback on consumerism and rising prices in a lot of ways. Whether or not in the long run that is actually positive for the American economy and allows them to rebalance their trade deficit. I think that
is a bigger question for economists. But then on the micro level, on the individual level, it's going to mean that some of these crazy bargains that they were seeing on these websites are going to be gone. Mean, you know, just higher prices, less choice, and potentially longer delivery waight times as well.
This is the big take Asia from Bloomberg News. I'm wan ha. This episode was produced by Young Young, Naomi m and Jessica Beck. Additional reporting came from Danielle Away and special thanks to Lepe. It was edited by Patty Hirsch and Mark Million. It was mixed by Alex Suguiera and sound designed by Jessica, who also fact checked it. Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole Beemster Bower. Sage
Bauman is Bloomberg's head of podcasts. If you like this episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It really helps people find the show. Thanks for listening, See you next time.