Trump's swings at China land on MAGA heartland

By Catherine Thorbecke

It doesn’t take an economic genius to pinpoint the allure of Chinese e-commerce giants.

The rapid growth of platforms like Shein, PDD Holdings Inc.’s Temu, and Alibaba Group Holdings Ltd.’s AliExpress was never about the quality of their products, ethical supply chains, customer service, or even US consumerism and excess. It’s always been about their ultra-low prices.

As cost-of-living anxieties skyrocket and lingering inflation continues to bite household budgets, these digital outlets have been especially important for low-income Americans to obtain everything from phone-chargers and prom dresses to blazers for a job interview. It may seem like trivial junk, but these ultra-cheap marketplaces can make a difference, especially in rural areas that are underserved by discount in-person retail chains.

President Donald Trump’s revoking of the “de minimis” rule, the tariff exemption that allows packages under $800 to enter the country duty-free, will no doubt hurt Chinese e-commerce players’ business models. But these companies have been preparing for the volatility. The bigger pain will be felt by the US households that are already struggling to get by — and many of the communities that voted for Trump precisely because of the economic ache they’re enduring.

Research has shown that “de minimis” shipments are relatively more important based on demographics. A vast majority — 73 per cent — of direct imports shipped to the poorest zip codes are in this category, and the share from China was more than double compared to the richest zip codes.

The researchers from Yale University and the University of California, Los Angeles found that eliminating the policy would “raise the cost of living disproportionately more for non-white households.” The economists also calculated that it would result in the poorest zip codes facing average tariffs of 11.8 per cent, compared with 6.5 per cent for the richest. And this isn’t even taking in Trump’s fresh announcement of additional 10 per cent tariffs on Chinese goods.

The likes of Temu, Shein and AliExpress have been diversifying shipping bases and stocking bulk inventory in the US, but it’s not clear they will be able to sustain the low prices. The trade war will cause new headaches, but these firms will likely still grow, Bloomberg Intelligence analysts wrote in a note this week. They can partly offset the damage to business by cutting logistics costs per unit via tapping into their expanding network of American warehouses.

The move to revoke the duty-free loophole is already causing chaos domestically as the US Postal Service temporarily suspended inbound packages from China and Hong Kong — before reversing course just hours later. Trump has said that he hopes the move will stop the flow of lethal drugs like fentanyl from coming in. But the majority of fentanyl seizures happen via land transport, not the air cargo used to ship Chinese e-commerce goods. It doesn’t seem like the most effective plan to address the drug crisis.

Without looking at revoking “de minimis” specifically, the Budget Lab at Yale University forecasts that Trump’s tariff policy could cost the average US family an additional $1,200 per year. As more households feel the pinch, it’s very likely that an erratic trade war could backfire.

Voters in working-class communities largely viewed Trump as better able to handle the economy — ranked as the most important issue at the election, at the highest level since the Great Recession in 2008 — than his opponent. They are expecting him to bring prices down, not up.

There are valid concerns from US stakeholders about the competition from ultra-low-cost Chinese e-commerce platforms hurting US retailers. (Though Temu shoppers are more likely to take business from US dollar stores, which are also expected to raise prices as a result of China tariffs.) Some business leaders, including Amazon.com Inc. Executive Chairman Jeff Bezos — who watched the presidential inauguration court-side — may welcome the scrapping of “de minimis.” The loophole gave Chinese online stores an edge in keeping prices lower than the US e-commerce giant.

There’s also mounting global scrutiny on their environmental impact. And Washington has shown increasing concern over the data collected by apps originating from China. But right now the rise of these platforms is exposing realities about the financial state of many Americans. Consumer spending helped cement the US economy’s position as the world’s largest in 2024. Time will tell how people will respond to the raft of tariffs and changing marketplaces.

US policymakers have repeatedly said they recognize that the burdens of high inflation fall heaviest on those who are least able to bear them. Or as writer and Civil Rights activist James Baldwin put it, those who have struggled with poverty know “how extremely expensive it is to be poor.” It’s these communities that Trump promised not to overlook during his campaign that will feel the sharpest impact from a trade war likely to only escalate.

Ultimately, Trump’s opening blows will hit China and these exporters. But American consumers will feel the whiplash.