Temu, a discount retail app owned by PDD Holdings Inc., is passing new US import taxes onto consumers.

This change has led to increased product prices.

It follows the elimination of the de minimis tariff exemption, which previously allowed parcels valued up to US$800 to avoid import duties.

Starting May 2, items shipped from China will incur either a 120% ad-valorem tax or a minimum fee of US$100 per item.

Customers are required to pay these taxes in addition to the original prices of the products.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Historical evidence shows tariffs consistently pass costs to consumers

Temu’s price increases mirror established economic patterns where tariffs typically get passed directly to consumers rather than being absorbed by companies.

Studies of the 2018 tariffs found that American consumers bore nearly the entire burden of those import taxes, with prices rising almost immediately after implementation 1.

A Federal Reserve Bank of New York analysis specifically calculated that those tariffs raised the Consumer Price Index by 0.3%, directly impacting household budgets across product categories 1.

This pattern is particularly evident in consumer goods marketplaces. For example, when the US imposed washing machine tariffs of 20-50% in 2018, retail prices jumped by nearly the same percentage within weeks 1.

The current situation with Temu applying direct pass-through rates averaging 1.24x the product price (with some reaching 1.41x) aligns with what economists have consistently observed: tariffs effectively function as a consumption tax paid primarily by domestic consumers.

2️⃣ Supply chain adaptation creates two-tier pricing systems

Temu’s strategic warehouse buildup since February demonstrates how retailers are responding to tariff policies by creating parallel supply systems.

Their “half-custody” framework has created a two-tier pricing structure where 66 of their top 80 bestsellers now ship from domestic warehouses and avoid the tariff surcharges 2.