Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Hey there's Spencer. How's it going?
Speaker 3: Hi?
Speaker 4: Good, Bloomberg.
Speaker 2: Spencer Soaper has been covering e commerce companies like Amazon
Speaker 2: and eBay for more than a decade, and recently he's
Speaker 2: been following one shopping app super closely, Tamu and Spencer.
Speaker 2: Do you shop on Tamu?
Speaker 4: Yes, yes I do.
Speaker 2: Do you what do you buy?
Speaker 4: Just some random things. I got some motion sensing lights
Speaker 4: for under the cabinets in the kitchen, and then I've
Speaker 4: also got some gardening supplies like drip irrigation things.
Speaker 2: Tamu is an e commerce marketplace owned by the Chinese
Speaker 2: company PDD. It started selling in the US in twenty
Speaker 2: twenty two, and it's been growing fast, so fast that
Speaker 2: it's now the second biggest online shopping platform, right after Amazon.
Speaker 4: Yeah, it very quickly became the most downloaded shopping app
Speaker 4: in the US.
Speaker 3: Yes.
Speaker 4: I think the last numbers I saw were fifty million
Speaker 4: active monthly users.
Speaker 2: One key reason that Tamu is able to win over
Speaker 2: so many US customers is its competitive pricing. Products on
Speaker 2: Tamu are usually much cheaper than anywhere else, and Tamu
Speaker 2: is able to price its goods lower, largely thanks to
Speaker 2: something called the deminimus rule, also known as.
Speaker 4: This deminimous loophole, which means any one person in the
Speaker 4: US can bring in anything worth less than eight hundred
Speaker 4: dollars without paying tariffs on it. So since Timu is
Speaker 4: doing a direct to consumer shipping model from China, they
Speaker 4: can slip in without paying any kind of tariffs, and
Speaker 4: those can be twenty five to thirty percent, and it
Speaker 4: looks like they're going to go even higher.
Speaker 2: In Latin deminimus loosely translates to too small to matter.
Speaker 2: It's a tax rule from the nineteen thirties that was
Speaker 2: originally created to allow Americans traveling overseas to ship back
Speaker 2: their souvenirs duty free.
Speaker 4: If you're coming home from a vacation to another country,
Speaker 4: you have some gifts in your suitcase, you know they
Speaker 4: don't want customs officials getting bogged down charging tariffs on that.
Speaker 4: But now this is applied to e commerce and cross
Speaker 4: border e commerce.
Speaker 2: But earlier this month, President Donald Trump took aim at
Speaker 2: this near century old rule, the Minimus room.
Speaker 3: Now that is being revoked by Trump and numeris saying
Speaker 3: it could cost China about one point three percent of
Speaker 3: its exports growth and about zero point two percent of
Speaker 3: its GDP, So pretty significant given that these small puzzles
Speaker 3: may come about eleven percent of China's exports to the US.
Speaker 5: A lot of these supplies were extremely shocked by how
Speaker 5: sudden and chaotic this happened to them.
Speaker 2: Rachel Chang is Bloomberg's Managing editor for Global Business in Asia.
Speaker 5: That's definitely a chilling effect because the draw of these
Speaker 5: places are how super cheap they are. Once you'd lose
Speaker 5: that cheapness, once this added costle, added fees, you know,
Speaker 5: of course, that attractiveness goes away.
Speaker 2: And one Chinese merchant tells us that closing the tax
Speaker 2: loophole has huge consequences for some Chinese manufacturers and retailers.
Speaker 1: Jimmy, sure they can basically close overnight.
Speaker 2: Welcome to the Big Take Asia from Bloomberg News. I'm Wanha.
Speaker 2: Every week we take you inside some of the world's
Speaker 2: biggest and most powerful economies and the markets, tycoons and
Speaker 2: businesses that drive this ever shifting region. Today, on the
Speaker 2: show the Deminimus and what does closing it mean for
Speaker 2: Chinese e commerce giants like Tamu and their American Customers
Speaker 2: Spencer For people who aren't familiar with tamu, can you
Speaker 2: start by telling us what this app does?
Speaker 4: So Tamu is like a discount store in your phone.
Speaker 4: So you download the app, and when you go in,
Speaker 4: before you even get a chance to look at anything,
Speaker 4: you're likely going to see a prize wheel or some
Speaker 4: sort of like maybe like an egg, and they'll say, ooh,
Speaker 4: prize for you, and they'll already start kind of bombard
Speaker 4: you with deals and discounts.
Speaker 2: Tamu launched in the US in September twenty twenty two
Speaker 2: with relatively little fanfare, and a few months later, its
Speaker 2: parent company PDD jumped at the chance to introduce itself
Speaker 2: formally to US consumers an event that they knew would
Speaker 2: get the attention of millions of eyeballs, the Super Bowl.
Speaker 4: They had a Super Bowl commercial in twenty twenty three
Speaker 4: where they really poked at people's curiosity and it really
Speaker 4: took off. It was an immediate hit. And they had
Speaker 4: this campaign shopped like a billionaire, like meaning like it
Speaker 4: doesn't matter how much money you have, you can shop
Speaker 4: like money snow object because our deals are so good.
Speaker 2: Like besides going big on the Super Bowl. Spencer says,
Speaker 2: Tamu came to the US at the right time.
Speaker 4: We had just come out of the pandemic, so so
Speaker 4: a lot of people grew really accustomed to shopping just
Speaker 4: about anywhere online and experimenting with new sites they weren't
Speaker 4: necessarily familiar with. That used to be something people were
Speaker 4: a little hesitant about. And also we had hyperinflation, and
Speaker 4: so people were just looking for deals. So tim we
Speaker 4: really stood out with bargains at the right time when
Speaker 4: people were just grappling with higher costs for groceries and
Speaker 4: everyday expenses, that sort of thing.
Speaker 2: If you open Tamu now you can find things like
Speaker 2: a six dollars Apple Watch look alike or a twenty
Speaker 2: dollars mini Arcade claw machine, And if you buy more,
Speaker 2: the app often offers an even bigger discount or throws
Speaker 2: in freebies with your orders.
Speaker 4: The big thing about it is discounts. You know that
Speaker 4: the prices are very low, so you're likely to find
Speaker 4: items at cheaper prices than you could find at a
Speaker 4: store near you, if you could even find the item
Speaker 4: near you or on competing marketplaces in the US like
Speaker 4: Amazon or eBay or Walmart. A lot of things could
Speaker 4: maybe be like half as much as on Amazon or less,
Speaker 4: and on TikTok.
Speaker 2: There's tons of videos where people talk about their Tamu hauls.
Speaker 4: Why do you like to waste money?
Speaker 2: Why are you not checking Timu before.
Speaker 4: You buy stuff?
Speaker 5: Let's not get duped.
Speaker 4: Let's buy the dupe.
Speaker 2: And the reason Amazon customers are paying a lot more
Speaker 2: for similar or sometimes even the same item, Spencer says
Speaker 2: the markup largely reflects the cost of fast delivery.
Speaker 4: So Amazon is all about speed two day delivery, one
Speaker 4: day delivery, same day delivery, and most of their items
Speaker 4: bundled around that without a consideration to say, you know what,
Speaker 4: I'd rather get it for less if I can wait
Speaker 4: a little longer. Timu's saying, hey, if you can wait
Speaker 4: seven days, ten days, we'll get you a really good
Speaker 4: deal on this item. So that's the trade off for
Speaker 4: the shopper. But what Timo's really shown is, hey, people
Speaker 4: are willing to be patient for a deal.
Speaker 2: Another factor that helped fuel Tamu's rise in the US
Speaker 2: Donald Trump himself. Trump imposed a host of tariffs on
Speaker 2: China during his first term, and that raised the cost
Speaker 2: for exporters, but he left one thing untouched. The dominimous rule.
Speaker 2: Now most of the world has versions of Dominimus, but
Speaker 2: the US is the most generous, up to eight hundred
Speaker 2: dollars per package, and that became a loophole for Chinese
Speaker 2: merchants to ship lots of goods into the US duty free.
Speaker 4: Most things, when you purchase them on Amazon, they're already
Speaker 4: in the United States in a US warehouse, So that
Speaker 4: means they were shipped on big cargo containers by ocean,
Speaker 4: and then they're paying tariffs when they come into the
Speaker 4: US through port, whereas Tamu they'll have facilities in China
Speaker 4: where they actually take a customer's order and put it
Speaker 4: into an individual package. You're doing that order fulfillment in
Speaker 4: a warehouse in China where labor is cheaper, put it
Speaker 4: on an airplane and fly it into the United States.
Speaker 4: Through what's called the deminimous loophole. In the US, you're
Speaker 4: not paying tariffs on the goods coming in.
Speaker 2: The Dominimus benefited not just but also other Chinese e
Speaker 2: commerce giants like fashion retailers she In.
Speaker 4: Tamu and Shean have really driven a huge rise in
Speaker 4: the volume of shipments entering the US. Through this loophole,
Speaker 4: and it's something like one point four billion in twenty
Speaker 4: twenty four, which was four million packages a day. It's
Speaker 4: more than tripled over pre pandemic levels.
Speaker 2: This year, TEMU is estimated to earn thirty billion dollars
Speaker 2: in US sales, a milestone that took Amazon more than
Speaker 2: a decade to reach. But now that forecast is under threat.
Speaker 4: President Trump said, We're going to close this demnimous loophole.
Speaker 4: And that was a big shock to the system. That's
Speaker 4: going to affect companies like TAMU and she In, and
Speaker 4: it's set off a scramble and a lot of people
Speaker 4: were just confused and not sure what it meant.
Speaker 2: A few days later, Trump reversed his order to revoke
Speaker 2: the Deminimus rule and delay the suspension. He said he
Speaker 2: wanted to give agencies more time to come up with
Speaker 2: adequate systems to quote fully and ex commediately process and
Speaker 2: collect tariff revenue.
Speaker 4: Yeah, you're going to need you're going to need a
Speaker 4: system in place. You're going to need infrastructure. You're going
Speaker 4: to need rules on how to handle this volume and
Speaker 4: how they're going to screen it and apply the appropriate tariffs.
Speaker 4: You can expect major changes in how these goods flow
Speaker 4: into the US.
Speaker 2: While the US Customs figures out a way to process
Speaker 2: and tax the hundreds of millions of parcels from China,
Speaker 2: Chinese manufacturers are working on contingency plants. That's after the break.
Speaker 2: On February first, President Donald Trump proposed new ten percent
Speaker 2: tariffs on all Chinese imports, and he ordered the suspension
Speaker 2: of the Dominimus rule for goods from China and Hong Kong.
Speaker 2: Almost immediately, big e commerce platforms took a hit. Here's
Speaker 2: Bloomberg's Rachel ching again.
Speaker 5: We saw traffic in the following five days for both
Speaker 5: she and Temu drop off. So she and US sales
Speaker 5: fell sixteen to forty one percent for that period, while
Speaker 5: Tamu saw a fault as much as thirty two percent
Speaker 5: during that period.
Speaker 2: That's a huge drop.
Speaker 3: Yeah, I mean.
Speaker 5: Early part of the year is generally a bit lower
Speaker 5: than pre Christmas, like sort of Black Friday sales push.
Speaker 5: But in terms of looking at these drops, there's obviously
Speaker 5: an immediate chilling effect from consumers right who may be
Speaker 5: a bit uncertain as what this means. If I buy
Speaker 5: five hundred dollars worth of stuff from Tamu. Am I
Speaker 5: now on the hook for customs duty on that.
Speaker 2: Yep, they lose their advantage there. Now, if I'm a
Speaker 2: Chinese retailer or a manufacturer who sells my products on Tamu,
Speaker 2: what does the closing of diminus loophole mean for me?
Speaker 5: So, you know, Chinese reporters talking to these factory owners
Speaker 5: right from the beginning, they were already seeing their logistics agent,
Speaker 5: which as companies that helped them get their goods from
Speaker 5: one step to another, immediately asking for thirty percent higher
Speaker 5: payment to cover what those additional costs might be. There's
Speaker 5: just so much chaos around the how this rule will
Speaker 5: be implemented, so we know for sure that would just
Speaker 5: be a lot of higher costs for these vendors in
Speaker 5: the medium term.
Speaker 2: To get a closer look at this chaos, we called
Speaker 2: up one of these logistics companies. Andy Guo is CEO
Speaker 2: of her non Taidea. He's been helping Chinese factories and
Speaker 2: retailers sell their products overseas since two thousand and nine.
Speaker 2: His company has operations all over the world. But who
Speaker 2: says that the US market until recently was probably the
Speaker 2: most promising.
Speaker 4: You're not.
Speaker 1: The US is indeed a great profitable market, but on
Speaker 1: the other hand, it is also an obvious market, so
Speaker 1: everybody wants a piece of it, and the competition is.
Speaker 2: Intense, who says. After COVID, the competition came even more cutthroat,
Speaker 2: and governments around the globe started to encourage companies to
Speaker 2: localize their operations.
Speaker 1: What does it mean to localize your operation? It means
Speaker 1: that if you want to expand in the US, you
Speaker 1: need to register your business in the US and pay
Speaker 1: your tax to the US locally. This localizing trend is
Speaker 1: getting stronger these years for e commerce businesses.
Speaker 2: Quo says his company moved on this trend early on
Speaker 2: during COVID, when shipping prices were skyrocketing. They acquired business
Speaker 2: licenses and established warehouses in the US. That means the
Speaker 2: products he helps sell are stored in the warehouses and
Speaker 2: can reach customers faster than smaller retailers who directly ship
Speaker 2: from Chinaquo says his business has never relied on the
Speaker 2: deminimus rule because the company ships products in bulk to
Speaker 2: the US, so instead of sending small packages under eight
Speaker 2: hundred dollars, the company has been paying tariffs from the
Speaker 2: get go, and that's already actored into its pricing, which
Speaker 2: is still competitive, he says, and that's why Gho's company
Speaker 2: is more or less insulated from the latest fallout.
Speaker 1: We don't ship a lot of small packages directly from China,
Speaker 1: so we are less affected by this new policy. But
Speaker 1: those companies who do, they can basically close overnight.
Speaker 2: Guo told us that closing the Deminimus is a shock
Speaker 2: to the retailers who compete solely by price and rely
Speaker 2: on the loophole to make a profit.
Speaker 1: That means for platforms such as alex Press, Tamu, and
Speaker 1: she all this marketplaces that rely on low prices, they
Speaker 1: are taking a major hit. Trump actually understands them very well.
Speaker 1: They're able to keep the prices so low because of
Speaker 1: China's cheap labor, and that's exactly what the US wants
Speaker 1: to hit take Trump.
Speaker 2: Quo says his logistics business can manage the changes Trump
Speaker 2: wants to put in place, but he questions if the
Speaker 2: US and a American consumers will ultimately come on top.
Speaker 1: These higher costs eventually go to the customers. Just raise
Speaker 1: the price, right, But mating China can not happen in
Speaker 1: one year or two and Trump says he's doing this
Speaker 1: to bring manufacturing back to America. I don't think that's
Speaker 1: going to happen overnight either.
Speaker 2: Groo says removing the deminimus could help drive Chinese factories
Speaker 2: to improve the quality of their products. He says closing
Speaker 2: the loophole will certainly remove the incentive to use cheap
Speaker 2: labor at least And Rachel says removing the old loophole
Speaker 2: is a watershed moment for e commerce from China.
Speaker 5: If you look at the kind of stuff that you
Speaker 5: got off Tamu for those sorts of prices, right, I
Speaker 5: think sometimes a lot of people would just questioning, like
Speaker 5: is this normal that you're able to buy all these
Speaker 5: sorts of things so like literally like a dollar and
Speaker 5: get them shipped from China? Right, Because if you're relying
Speaker 5: on the loophole to build a huge business, then is
Speaker 5: that business going to be able to be sustainable in
Speaker 5: the long term. Is that something that is a good
Speaker 5: business model that can be profitable or was it being
Speaker 5: subsidized by all of these non market forces that ultimately
Speaker 5: would disappear. And I think we're at that moment of
Speaker 5: reckoning right now.
Speaker 2: And Rachel, what do these changes mean to American consumers
Speaker 2: who love a good deal.
Speaker 5: I think what these changes mean really is higher prices
Speaker 5: and less choice. And we know that inflation is hitting
Speaker 5: American consumers from all directions. Right, Eggs unaffordable now because
Speaker 5: of what bird Fool is doing. So there's just likely
Speaker 5: to be a pullback on consumerism and rising prices in
Speaker 5: a lot of ways. Whether or not in the long
Speaker 5: run that is actually positive for the American economy and
Speaker 5: allows them to rebalance their trade deficit. I think that
Speaker 5: is a bigger question for economists. But then on the
Speaker 5: micro level, on the individual level, it's going to mean
Speaker 5: that some of these crazy bargains that they were seeing
Speaker 5: on these websites are going to be gone. Mean, you know,
Speaker 5: just higher prices, less choice, and potentially longer delivery waight
Speaker 5: times as well.
Speaker 2: This is the big take Asia from Bloomberg News. I'm
Speaker 2: wan ha. This episode was produced by Young Young, Naomi
Speaker 2: m and Jessica Beck. Additional reporting came from Danielle Away
Speaker 2: and special thanks to Lepe. It was edited by Patty
Speaker 2: Hirsch and Mark Million. It was mixed by Alex Suguiera
Speaker 2: and sound designed by Jessica, who also fact checked it.
Speaker 2: Our senior producer is Naomi Shaven. Our senior editor is
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