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In this issue, we dive into the invasion of the U.S. e-commerce market by Chinese companies. We’ll explore what facilitated their rapid growth, examine their current market share and expansion, and discuss the potential harmful effects on American businesses and consumers.

Cheap Thrills 📦

The year was 1784. A lone American ship, the Empress of China, departed from New York Harbor, bound for the distant shores of China. Financed by the American businessman Robert Morris, the Empress embarked on a journey with two pivotal missions. The first was to establish a new trade relationship between the United States and China, bridging two vastly different worlds. The second was to satisfy America’s newfound craving for tea — a beloved staple that had vanished from daily life after the Treaty of Paris halted British imports.

Upon reaching Guangzhou in China, the American cargo of pepper, ginseng, and furs was traded for tea, cotton, porcelain, and silk. The Empress returned to New York in May 1785 with exotic imports that delighted the American society and made a profit of $30,000 for Morris and his partners — laying down the foundation for the US-China trade relations. 

Two hundred years later, the United States and China now have a complex, love-hate relationship. From being each other’s top trading partners to imposing humongous tariffs, their trade relations have experienced every high and low.

One intriguing aspect of this dynamic relationship is China’s growing influence on U.S. e-commerce. From product sourcing to consumer trends and supply chain innovations, let’s explore how China has impacted — and continues to influence — the US e-commerce landscape.

Rise of the Dragons 

American homes filled with Chinese-made products are nothing new. This trend dates back to the 1980s when U.S. companies began relying heavily on China for production. Back then, American businesses would design the products and manage the logistics—importing, warehousing, and delivering items to customers. This shift for cost savings led to the decline of manufacturing hubs and jobs in the U.S.

Today, however, the dynamics have changed in ways that no one could have anticipated. With the rise of e-commerce, Chinese manufacturers and sellers can now reach American consumers directly, cutting out the middlemen entirely.

The Chinese e-commerce giants have seeped into the U.S. market like tea from a tea bag — slowly at first, but now infusing every corner of the retail landscape. Companies like Shein, Temu, TikTok, and AliExpress have transformed the way Americans shop, drawing consumers with affordability, convenience, and an endless stream of new trends. 

Analysts at Bank of America project that sales from Chinese online platforms in the U.S. could nearly triple, reaching $40 billion in 2024, up from $15 billion last year. This would represent a 3% share of the U.S. e-commerce market. 

Let’s first look at Shein. The fast-fashion giant whose meteoric rise is a testament to the changing dynamics of U.S. e-commerce. With a valuation leaping from $5 billion in 2019 to an astonishing $63 billion by 2023, Shein’s success is anchored by its U.S. earnings. The brand now holds around 50% of the U.S. fast-fashion market share, outpacing legendary competitors like H&M and Zara. 

Its agile supply chain and data-driven design process allow it to deliver an endless array of trendy, budget-friendly styles. It’s also worth noting that Shein is flooding the market with ultra-cheap goods on an unprecedented scale. Between 2022 and 2023, Shein launched 1.5 million products globally — this is 37 times more than Zara and 65 times more than H&M. 

Another Chinese e-commerce star and new kid in town is Temu. Launched in 2022, Temu has rapidly gained traction, achieving a gross merchandise value of $15.33 billion in 2023 and claiming a substantial 17% of the U.S. discount store market. Temu is the world’s second most visited e-commerce website after Amazon. 

Temu’s rapid rise, offering everything from home goods to electronics, highlights the strong appeal of low-cost products backed by an efficient logistics network that delivers swiftly and affordably—qualities that have struck a chord with American shoppers. With projections of its gross merchandise value soaring to $29.5 billion by 2024, Temu’s growth shows no signs of slowing down.

“The medium is the message,” Marshall McLuhan famously theorized, and TikTok is the embodiment of this idea. TikTok hasn’t just transformed how Americans consume content – it’s reshaped how they shop, fueling the rise of Shein and Temu in the United States.

Other Chinese e-commerce players are also carving out their niche in the U.S. market. AliExpress, Alibaba’s international shopping platform, continues to attract American consumers with its extensive selection and low prices, appealing to budget-conscious shoppers across categories like electronics and home goods.  

Secret of Success

Why are Americans so enamored with products from Chinese e-commerce platforms? There’s no straightforward answer to this, but it’s clear that these sites have struck a chord by offering an unbeatable combination of affordability, variety, and convenience.

At the heart of their appeal is affordability. These platforms consistently offer products at prices well below those in traditional U.S. stores, attracting a budget-conscious audience.

A survey by Omnisend found that 53% of American shoppers are drawn to these marketplaces mainly for their low prices. Rising inflation in recent years has further fueled this trend, as American consumers have become more price-sensitive. At the peak of inflation in 2022, when everyday costs hit highs not seen since the 1980s, platforms like Shein and Temu became go-to options for shoppers looking to cut costs without sacrificing variety.

Beyond price, these platforms provide an extensive range of products across categories such as fashion, electronics, and home goods. Shoppers find unique items they wouldn’t always see in local stores. 

Fast-fashion leader Shein, for example, has become famous for quickly turning the latest trends into affordable items, appealing to style-savvy shoppers eager to stay on trend without overspending. The scale and speed of Shein’s inventory are remarkable, with over 600,000 products available and around 6,000 new items added daily. It has an inventory turnover rate of just 40 days and an unsold inventory rate of less than 2%.

The overall shopping experience is also a major draw. These platforms make browsing, discovery, and purchasing easy with user-friendly interfaces, flash sales, and loyalty programs that keep customers coming back. Temu, in particular, has captivated American shoppers with its gamified user experience. 

A big driver behind the success of these companies is their massive advertising budgets. 

Temu went all out with a 1,000% increase in ad spending from January to November 2023. Around 76% of Temu’s budget went to social media, flooding Instagram, TikTok, and YouTube with eye-catching ads. Temu even debuted at the Super Bowl, airing its “Shop Like a Billionaire” ad. 

Shein has also been pouring money into advertising, with an estimated $300–$400 million spent on marketing and customer acquisition. In the last quarter of 2023 alone, Shein’s U.S. ad spending surged by 160%, reflecting its push to capture even more of the American market.

On the other hand, in 2023, Amazon’s marketing spend reached around $44.4 billion, up from $42.3 billion in 2022, covering a range of channels, including digital ads, to keep its edge in the market.

Virus and trade law 

Blessings come in many forms, and for Chinese e-commerce companies, they arrived in the shape of a virus and an old American trade law. The COVID-19 pandemic reshaped American shopping habits as consumers shifted online for everything from essentials to luxury items. Platforms like Shein, Temu, and TikTok quickly exploited this shift, offering cheap and diverse products that fit the new e-commerce boom perfectly.

But it wasn’t just timing that fueled their rise. A centuries-old trade law provided an opening that these companies could skillfully circumvent. Despite escalating trade tensions and tariffs from the U.S.-China trade war, these companies found a way to flourish by leveraging Section 321 of the Tariff Act of 1930. 

This de minimis rule, originally intended to simplify customs on small personal imports, allows goods valued at $800 or less to enter the U.S. duty-free. For Chinese e-commerce giants, it became a powerful loophole to bypass import taxes and flood the U.S. market with low-cost products, undercutting domestic competitors and accelerating their growth.

Chinese companies, including Shein, Temu, and AliExpress, seized on this provision by shipping small, individual orders directly from Chinese factories to American consumers. With most of their items priced under the $800 threshold, they could send millions of packages daily, bypassing tariffs and taking full advantage of the system.

In 2023, over 1 billion packages entered the U.S. under the de minimis rule, up from 134 million in 2015. China is the largest source, sending nearly 3 million parcels to the U.S. daily through this exemption, according to U.S. Customs and Border Protection data. 

A report by the House Select Committee on the Chinese Communist Party in 2023 found that Shein and Temu alone accounted for over 30% of these daily shipments. Exploiting this loophole, these Chinese e-commerce companies do not pay a single penny in tariffs. For example, GAP paid an import duty of $700,000,000 in 2022, while H&M paid 205,000,000. On the other hand, Shein and Temu paid $0 in tariffs in 2022!

Ugly Truths

Behind the facade of affordable prices and trendy products lies some of the most troubling practices of Chinese e-commerce giants. While their low costs attract millions of American consumers, the impact of these platforms extends beyond simple transactions.

Beneath the surface, a series of issues around counterfeit goods, intellectual property violations, data privacy risks, and even potential national security concerns are increasingly coming to light.

The U.S. has seen a surge in counterfeit products flooding the market, with many coming from China, the world’s top source of counterfeit and pirated goods. In 2019 alone, U.S. customs officials seized $1.4 billion worth of counterfeit products, with China and Hong Kong responsible for around 87% of these items. 

These fake products cover a wide range—from luxury fashion and electronics to pharmaceuticals—posing risks to consumer safety and undercutting legitimate businesses. Counterfeit electronics, for instance, can be dangerous, while fake luxury items erode brand value and impact the U.S. economy.

This continuous influx of counterfeit goods brings serious concerns over quality control, brand integrity, and consumer protection—issues that are often overlooked in the pursuit of low prices.

Intellectual property theft is another significant problem tied to some Chinese e-commerce platforms. Shein, in particular, is infamous for copying designs from independent artists and small businesses.

In fact, over the past three years, Shein has been named in at least 50 federal lawsuits in the U.S., facing allegations of trademark and copyright infringement. One high-profile case involved a California artist who discovered that Shein was selling an exact copy of her design without permission. Such IP violations undermine the hard work of small creators and erode the value of innovation and originality in the fashion and design industries. 

Several major fashion brands and retailers have accused Shein of copyright infringement. In July, H&M filed a lawsuit against Shein, claiming the company had stolen its intellectual property and sold counterfeit products. Other well-known brands, including Dr. Martens, Ralph Lauren, Levi Strauss, Puma, and Adidas, have lodged similar complaints.

Interestingly, Shein and Temu have filed lawsuits against each other over copyright violations and IP infringement. In a recent federal complaint, Shein accused Temu of engaging in trade secret theft, counterfeiting, and trademark infringement. Shein also alleges that Temu falsely posed as Shein on social media to misdirect customers to its own platform.

Privacy experts have also raised alarms about the extent of data collection by Chinese platforms. Shein’s app, for instance, has been flagged for accessing personal user data well beyond what is necessary for its services, including tracking browsing behavior, location, and purchasing habits. 

This data collection raises concerns over how consumer information might be used, especially as it’s stored outside U.S. jurisdiction.

According to the Center for Strategic and International Studies, in 2022, more than 80% of Temu's revenue came not from direct sales to customers but from selling advertising services to its network of third-party retailers.

Beyond consumer data, the presence of these Chinese companies in the U.S. market has ignited national security concerns. Critics argue that platforms like Shein and Temu could act as a "Trojan horse," collecting vast amounts of American user data that might be accessible to the Chinese government. 

This concern mirrors the scrutiny faced by TikTok, which has undergone extensive investigation over data privacy and potential influence on American users. The fear is that data collected on millions of Americans could be exploited for espionage, giving foreign entities insight into U.S. consumer behavior, interests, and possibly even sensitive information.

Chinese influence 

It’s not just Chinese companies expanding into the American market; even American e-commerce platforms are now heavily populated by Chinese sellers. Platforms like Amazon and Walmart have seen a huge influx of sellers based in China, reshaping the e-commerce landscape and increasing competition for U.S.-based businesses.

One of the biggest drivers of this change has been Amazon, the world’s largest e-commerce platform. Through Amazon’s Fulfillment by Amazon (FBA) program, Chinese sellers have direct access to American homes. 

FBA allows these sellers — many based in China — to store their products in Amazon’s U.S. warehouses, with Amazon handling all the logistics, including storage, packaging, and shipping. This setup means that Chinese sellers can reach American shoppers just as easily as local brands.

The scale of this presence is striking: more than half of the top 20 cities with the most Amazon sellers are in China, with Shenzhen alone housing over 102,000 sellers who collectively generate $35.3 billion in annual revenue. Interestingly, ​​Approximately 50% of the top 10,000 sellers in the US are Chinese sellers. 

Walmart, too, has a similar story. In 2021, Walmart opened its marketplace to international third-party sellers, much like Amazon’s FBA. By 2022, Chinese sellers had overtaken their U.S. counterparts, making up over 90% of Walmart's international sellers. Both of these programs—Amazon FBA and Walmart Fulfillment Services—have allowed Chinese companies to reach U.S. consumers with unprecedented ease.

Home Run

The latest development in the U.S.-China e-commerce story is that many Chinese businesses are now investing in and opening storage and fulfillment centers across the United States.

This shift is a strategic response to mounting scrutiny over the de minimis loophole, which the Biden administration is looking to close, and the desire to cut air freight costs and improve delivery times.

By establishing local warehouses, Chinese e-commerce companies like Shein and Temu can create more sustainable growth, ensuring faster, more efficient service to American consumers.

Much of this activity is concentrated in major logistics hubs near ports, including Southern California, New Jersey, and Savannah, Georgia. In New Jersey alone, Chinese logistics companies leased 5.6 million square feet of warehouse space by the third quarter, nearly tripling the amount they occupied in all of 2023, according to real estate firm JLL.

Leading Chinese brands are spearheading this trend. Shein, for example, has established warehouses in Indiana and California and partnered with Flexport to manage inventory and fulfill orders for its U.S. sellers. Meanwhile, Temu has dramatically expanded its local operations; as of 2024, 20% of Temu’s U.S. sales are fulfilled from American warehouses, a major shift from 0% at the year’s outset.

While the broader U.S. warehousing market has slowed post-pandemic, the influx of leasing from Chinese logistics operators has been a welcome boost for warehouse owners.

Conclusion 

Many Chinese e-commerce companies are adopting strategies similar to those of Shein, Temu, and AliExpress to expand their presence in the U.S. market. For example, LightInTheBox (listed on the New York Stock Exchange) has begun emulating Shein's social media model to influence American consumers. 

Closing the de minimis loophole is a strong step toward curbing the influence of foreign companies, making sure they pay their fair share of duties and follow stricter entry rules. 

But more needs to be done. The U.S. must take stronger action to protect its e-commerce market from the negative impacts of unchecked Chinese influence. This goes beyond just the immediate issues of data security and counterfeit goods; it speaks to a much larger problem—the significant trade imbalance between the U.S. and China.

Chinese companies have relatively free access to American consumers, while U.S. businesses face an uphill battle in China, where restrictive policies and local protections make true competition nearly impossible. This one-sided flow of goods and profit ultimately disadvantages the U.S. economy and is a pressing issue that needs to be addressed first.

The U.S. should enforce stronger regulations that prioritize data security, protect intellectual property, and uphold higher standards for product quality and safety. This is not about closing the door on trade; it's about ensuring a fair playing field where American businesses have an equal chance to thrive.

Thank you for reading. We’ll see you at the next edition!