In February 2023, the budget shopping platform Temu announced itself on the world stage in the brashest way possible: becoming one of the youngest ever brands to buy a Super Bowl advertising spot.

“Download the Temu app and shop like a billionaire,” a voice proclaimed in the 30-second commercial, as a woman danced on screen and ordered a series of outlandishly cheap items: from a US$8.99 dress to a US$4.99 wig.

The commercial – which aired twice during the game, costing Temu an estimated US$14 million – was part of a marketing blitz by the platform, as it tried to introduce American consumers to a marketplace built on ultra-low prices, a wide array of products, and a gamified shopping experience.

That expense paid off: Temu’s downloads jumped 45 per cent on the day of the Super Bowl campaign compared with a day earlier, according to a report by trade outlet ModernRetail, citing Sensor Tower data.

The platform’s breakneck rise continued to gain momentum from there, bringing Chinese-style e-commerce to markets around the world.

However, three years on, Temu’s initial business proposition is being rewritten amid a wave of global regulation, with rising customs barriers eroding some of the advantages that made its cut-to-the-bone prices possible.

At the heart of the change is a simple issue: shipping a dress directly from a warehouse in China to doorsteps in America or Europe is no longer as simple – or cheap – as it was a couple of years ago.

Temu’s ability to offer such ultra-low prices was built on two main factors: its vast, well-oiled Chinese supply chain and a clever distribution strategy that allowed the firm to avoid paying hefty import tariffs.

[PDD] has operated in China for so many years and built a very mature ... and reusable supply chain systemChen Tao, Analysys International On the supply side, Temu could draw on parent company PDD Holdings’ years of expertise operating Pinduoduo – one of China’s largest e-commerce platforms, which has built a sprawling supply chain with deep roots in the Chinese manufacturing sector.

PDD “has operated in China for so many years and built a very mature … and reusable supply chain system”, said Chen Tao, an e-commerce analyst at consultancy Analysys International.

Temu had effectively copied Pinduoduo’s business model and rolled it out globally, Chen added.

The model allows Temu to draw on China’s sprawling network of factories, suppliers and cross-border merchants, which is able to produce and ship goods at a scale and cost unmatched anywhere else in the world.

Since China began opening its economy in the late 1970s, specialised clusters for producing particular products have formed across the country, concentrating factories, suppliers, logistics firms and skilled workers into dense, tightly woven ecosystems.

In southern China’s Guangdong province, for example, the city of Dongguan is known for electronics and toys, while Shenzhen is a hub for electronics. Foshan specialises in furniture, and Zhongshan is a major centre for lighting products.

Vast trading and logistics networks have formed alongside these manufacturing clusters, helping factories reach buyers around the world.

Yiwu, a city in eastern China’s Zhejiang province, has developed a gargantuan wholesale market where hundreds of thousands of vendors sell almost any small product imaginable to overseas buyers – from toy cars to Christmas decorations.

The city is home to well over 260,000 cross-border e-commerce businesses, according to non-exhaustive local government data. Temu estimates that about 40 per cent of its merchants are based in the city.

Another critical piece that made the economics work for Temu was the once-permissive trade policy in some of its largest overseas markets including the US, according to Chen.

In the US, the long-standing “de minimis” exemption allowed individual shipments worth less than US$800 to enter the country without the duties normally imposed on larger commercial imports, helping make it economical for Temu to ship low-cost goods directly from Chinese suppliers to American doorsteps.

It had become a major conduit for Chinese cross-border commercial parcels entering the US. About 60 per cent of the more than 1 billion packages that entered the US under the de minimis exemption in fiscal 2023 came from China, according to US Customs and Border Protection data.

Temu paired that trade advantage with its fully managed model, under which Chinese merchants supplied the goods while the platform handled much of the overseas sales process, from pricing and marketing to cross-border logistics.

“For a small merchant, the cost of shipping a small batch is very high,” Chen said. “But with a platform like Temu, many small batches of goods can be consolidated,” significantly reducing logistics costs.

At Temu’s scale, analysts said, orders from different merchants could be gathered in China and transported together across the Pacific, spreading freight costs across huge volumes of parcels while retaining their identities as individual consumer shipments for US customs and qualifying separately for de minimis treatment.

China’s low-cost supply base, Temu’s fully managed model and duty-free treatment of small parcels allowed the platform to sell to consumers an ocean away while keeping inventory in China until they ordered.

However, that formula was attracting scrutiny almost as quickly as Temu was attracting shoppers.

In April 2023, just two months after Temu’s first Super Bowl appearance, research staff at the US-China Economic and Security Review Commission, a congressional advisory body, identified the de minimis exemption as one of the regulatory advantages helping Chinese e-commerce platforms expand in the US.

The report said the huge volume of low-value packages made it harder for US authorities to inspect shipments and enforce trade rules, while also pointing to accusations against Temu over product quality and copyright infringement.

The commission said Chinese e-commerce platforms were particularly well positioned to benefit from de minimis because their goods were typically shipped as individual low-value parcels. Temu did not immediately respond to a request for comment.

The formula that once worked like magic began to quickly unravel in the US in May 2025 – four months after Trump was sworn into office – when the Trump administration ended de minimis treatment for low-value shipments from mainland China and Hong Kong. The exemption was later removed for shipments from all countries in August.

The change struck at one of the central advantages of Temu’s original model: goods could still be made cheaply in China, but getting them into the hands of American consumers suddenly became more expensive.

The impact was swift. Temu’s daily US users fell 48 per cent in May compared with March, according to Sensor Tower data cited by Reuters.

Analysts said the policy change threatened to weaken Temu’s low-price proposition by raising the cost of the direct-shipping model that had powered its expansion.

The new taxes would significantly increase the cost of shipping low-priced goods directly to overseas consumers and potentially push up retail prices, Chen said. That posed a particular challenge for Temu because many of its customers were price-sensitive, meaning higher prices risked driving some away, he added.

Zhang Zhouping, executive director at Ben Se Think Tank, a cross-border commerce consultancy, echoed Chen’s view.

“Taxes on small parcels erode the low-price advantage, while tax, logistics and compliance costs pile up,” Zhang said. “If those higher costs are reflected in final prices, price-sensitive consumers could be affected.”In response, Temu began moving goods closer to American shoppers.

The company had already started recruiting US-based sellers and rolling out what it called a “semi-managed” model in 2024, under which merchants took greater responsibility for moving and stocking their goods overseas.

Under the semi-managed model, merchants take on more responsibility for overseas logistics and warehousing, shifting inventory closer to consumers and reducing reliance on individual parcels shipped directly from China.

The change makes Temu less dependent on the cross-border shipping model vulnerable to changing tariff rules, but introduces more inventory, warehousing and local fulfilment costs into the supply chain.

By early 2025, about 20 per cent of Temu’s US sales were being shipped by local sellers, according to Marketplace Pulse, cited by Reuters. The end of de minimis accelerated that transition. The pressure is not confined to the US.

The European Union has also tightened rules on low-value e-commerce imports. Since July, goods worth less than €150 (US$177) entering the bloc have been subject to an interim €3 customs duty for each different category of goods contained in a parcel, ending the previous duty-free treatment ahead of a broader overhaul of the EU customs system.

The change has particular implications for Chinese e-commerce platforms, as some 4.6 billion low-value parcels entered the EU in 2024, with 91 per cent coming from China, according to the European Commission.

Other markets have moved in the same direction. Thailand began imposing a 10 per cent customs duty in January on imported goods worth 1,500 baht (US$46) or less, which had previously been exempt from customs duties. South Africa has also tightened tax treatment of low-value e-commerce parcels.

Together, the changes point to a broader erosion of the favourable treatment for low-value parcels that helped Chinese cross-border e-commerce platforms expand internationally, increasing the pressure to rethink a model built heavily around shipping inexpensive goods directly from China to overseas consumers. PDD has acknowledged the consequences.

At the company’s latest earnings call, Zhao Jiazhen, PDD’s co-chairman and co-chief executive, said cross-border orders in affected markets would face “lower fulfilment efficiency and higher costs”, which would have a “considerable impact” on parts of its business.

For the past decade, we sold the cheapest products in the world … In the next decade, we need our own brands to have bargaining power and pricing powerWang Xin, Shenzhen Cross-Border E-Commerce Association In the longer term, Zhao said Temu would bring in more local merchants and accelerate investment in local warehousing and fulfilment infrastructure to “integrate more deeply into every market we serve”.

That marks a significant pivot for a platform whose original appeal rested partly on reaching overseas consumers without building out the extensive local infrastructure associated with established global e-commerce businesses such as Amazon.

Another response could be geographic diversification, with Chinese platforms accelerating expansion into markets beyond the US and Europe where regulatory conditions differ, Ben Se’s Zhang said.

Analysys International’s Chen said Temu was unlikely to abandon its original model altogether. Instead, he expected it to combine direct shipping where it remained economical with overseas warehouses and locally held inventory elsewhere.

But the transition may ultimately involve more than changing how Temu gets goods to consumers. It could also change what it sells.

If the low-price strategy becomes less effective, Temu could increasingly turn towards branded products carrying higher margins and more moderate prices, Chen said. PDD has already taken a significant step in that direction.

In March, the group announced Xinpinmu, a strategic project to develop and operate its own brands by combining the supply chain resources accumulated by Pinduoduo in China with Temu’s overseas reach.

The group has injected 15 billion yuan (US$2.2 billion) into the project and plans to invest a total of 100 billion yuan over three years, with the venture developing brands across different product categories and markets for global consumers.

“Temu’s rapid growth over the past three years was a key leap made possible by the strength of China’s supply chain, and has also created a new opportunity to upgrade and reshape the domestic supply chain,” Zhao said when announcing the initiative.

Three years after Temu promised Americans they could “shop like a billionaire”, the factories capable of producing a US$8.99 dress cheaply have not disappeared, nor has the vast Chinese manufacturing ecosystem behind them.

What has changed is the economics of getting that dress from China to consumers thousands of kilometres away, and, increasingly, the kind of goods PDD wants those factories to sell.

Those economics could shift again as Washington and Beijing continue to negotiate the terms of their trading relationship.

During President Xi Jinping’s state visit to Washington last month, tariffs and other trade issues were high on the agenda as the world’s two largest economies seek to manage a fragile detente.

For Temu and other Chinese cross-border e-commerce companies, the stakes of that meeting are high, as their low-price model is particularly sensitive to tariffs and trade rules that raise the cost of moving goods from Chinese factories to US consumers.

For some in the industry, however, the changing environment is accelerating a broader push to upgrade China’s cross-border e-commerce sector beyond its reliance on low prices.

“For the past decade, we sold the cheapest products in the world,” said Wang Xin, president of the Shenzhen Cross-Border E-Commerce Association, in an interview with state broadcaster CCTV earlier this year. “In the next decade, we need our own brands to have bargaining power and pricing power,” she said.