Something is Going Deeply WRONG in China

Summary

The video script outlines the challenges faced by Chinese e-commerce giants Teu and Shien due to shifting global trade regulations and the U.S. government's crackdown on low-cost Chinese imports. As tariffs rise, Teu and Shien are forced to adapt their business models—shifting from cheap drop-shipping to warehousing and local fulfillment strategies. The companies are also reducing ad spend and refocusing on markets outside the U.S., such as Europe and Latin America. The narrative highlights how e-commerce is evolving under stricter rules and fairer competition, with the future uncertain but promising a major transformation in global retail.

Takeaways

• 😀 The U.S.-China tariff war forced Teu (Temu) and Shien to adapt their business strategies to avoid significant financial losses.
• 😀 Teu shifted its business model from drop-shipping to establishing U.S. warehouses and pre-clearing goods through customs, which was a costly change.
• 😀 Despite lower tariffs, Teu’s U.S. market share and advertising budget shrank significantly in early 2025, leading to reduced app downloads and a decrease in its presence on platforms like Meta, Google, and TikTok.
• 😀 Shien was better prepared for the tariff changes due to its earlier steps in diversifying production to countries like Vietnam, Turkey, and Brazil, which helped reduce costs and mitigate risks.
• 😀 Shien’s strategy to diversify production also aimed to reduce its reliance on Chinese factories and improve its adaptability to shifting trade rules and regional demands.
• 😀 Both Teu and Shien were forced to abandon the strategy of flooding the U.S. market with cheap, duty-free Chinese goods, marking the end of a profitable era for them.
• 😀 Teu’s ad spending in the U.S. fell by 10% in early 2025, and its share of ad impressions on Meta and Google plummeted as the company pulled back its marketing efforts.
• 😀 By mid-2025, over 90% of Teu's 405 million monthly active users were from outside the U.S., shifting its focus to markets in Europe, Latin America, and Southeast Asia.
• 😀 Shien's profit margins were squeezed by higher labor costs outside China, and it faced more complex logistics networks due to its global manufacturing footprint.
• 😀 The U.S. government, alongside the European Union, began pushing for tighter import rules and fairer competition in e-commerce, with a focus on countering the loopholes that companies like Teu and Shien had exploited.

Q & A

What were the main reasons behind the US government's crackdown on Chinese e-commerce platforms in 2025?

The US government increased tariffs and cracked down on Chinese e-commerce platforms to protect domestic businesses from the influx of cheap, duty-free Chinese goods. This was partly due to concerns over lost tax revenue, unfair competition, and the bypassing of import inspections.

How did Teu adjust its strategy in response to the tariff increases and changes in import rules?

Teu shifted from its asset-light, drop-shipping model to building US-based warehouses. This required paying import duties upfront and warehousing goods domestically, marking a significant change in its business strategy.

What was the impact of the tariff changes on Teu's advertising and user base in the US?

Teu's ad spending on Meta (Facebook and Instagram) decreased by 10% year-over-year, and its US user base shrank significantly. The share of monthly active users from the US dropped from 30% in 2024 to 15% in Q1 2025.

Why did Teu decide to stop advertising on certain platforms like TikTok and Google?

Teu stopped advertising on platforms like TikTok and Google Shopping due to a sharp decline in its US market share. As a result, Teu shifted its focus away from the US and into international markets where its cost model still worked.

What was the role of Shien's diversification strategy in responding to the changing global trade environment?

Shien's diversification strategy, which included expanding production in countries like Vietnam, Turkey, and Brazil, allowed it to avoid reliance on Chinese factories and mitigate risks from fluctuating tariffs and shifting trade rules. This also helped them navigate geopolitical tensions.

How did Shien adapt its strategy to reduce the impact of higher tariffs and logistics challenges?

Shien accelerated its manufacturing diversification and began testing US-based warehousing strategies. These moves helped reduce the reliance on Chinese factories, lower shipping costs, and better meet local demand in various regions.

What effect did the changes in the US tariff and import policies have on Teu and Shien's competitiveness in the US market?

Both companies faced a decline in their competitiveness in the US market due to the new tariff rules, which eliminated duty-free imports for smaller parcels. Teu’s advertising and user base shrank, while Shien faced higher labor costs from manufacturing diversification, making it harder for both to maintain their market positions in the US.

Why did the US push for changes in the tariff thresholds and what was the proposed plan?

The US pushed to lower tariff thresholds to close loopholes that allowed Chinese goods to flood the market duty-free. A bipartisan bill proposed reducing the threshold to as low as $10 or $50 for foreign sellers, aiming to ensure fairer competition and prevent the undercutting of domestic businesses.

How did the EU respond to the growing concerns over cheap Chinese imports and e-commerce?

The European Union started discussing stricter import regulations to address concerns over counterfeits, product safety, and fair taxation. These discussions were part of broader efforts to create a more balanced and fair global e-commerce environment.

What does the future of global e-commerce look like based on the developments in 2025?

The future of global e-commerce is likely to feature stricter rules, fairer competition, and higher stakes for companies. The crackdown on Chinese e-commerce platforms like Teu and Shien, along with increasing global scrutiny, suggests that the era of cheap, duty-free imports is ending, and businesses will have to adapt to new regulations and competition.