After the US Abolished the De Minimis Exemption
The 'Ultra-Low Price' Strategy Falters
The Wall Street Journal (WSJ) and other media outlets reported on May 27 (local time) that the first-quarter net profit of PDD Holdings, the parent company of China's Temu, plunged by 47% year-on-year, citing the impact of the US-China trade war and other factors.
PDD Holdings announced that its first-quarter net profit fell by 47% from the previous year to 14.74 billion yuan (approximately 2.8115 trillion won). Following the earnings announcement, PDD Holdings' share price, which is listed in the United States, plummeted by more than 17% during trading before closing down 13.6%.
Pinduoduo's first-quarter revenue, as reported, was 95.67 billion yuan, falling short of the average analyst estimate of 102.51 billion yuan.
This is interpreted as being due to the impact of the US-China trade war, which intensified after the inauguration of US President Donald Trump. The United States has increased pressure on China by abolishing the de minimis exemption for imported goods valued under $800, among other measures. Pinduoduo had been targeting the US market with an ultra-low price strategy, but these US actions dealt a blow to its sales. Although the US and China eventually reached a dramatic agreement, including raising mutual tariffs, analysts note that the aftereffects from the height of the conflict continued to impact sales.
WSJ analyzed that Temu, a subsidiary that gained popularity among price-sensitive US consumers with ultra-low-priced household goods, is facing a double whammy: not only the new US tariffs on Chinese imports, but also the abolition of the tax exemption that had applied to low-priced parcels from China.
The tariff on small parcels from China was subsequently raised from 90% to as high as 120%, but was reduced to 54% after the US and China declared a truce in the tariff war during trade negotiations held in Geneva, Switzerland on May 10-11.
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