Samir Mehta: Trump tariffs are unlikely to impact China’s big online retailers

Investors should be ready for any scenario as Trump weaponises trade tariffs. But it would take a lot to disrupt the big China e-commerce stocks, argues Pendal’s SAMIR MEHTA

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HUMAN psychology permeates investing.

In fact, several profitable businesses are driven largely by addiction, from cigarettes and alcohol to gambling, social media and — dare I venture — online shopping.

If you can get consumers hooked on your product or service, that is the ultimate bonanza.

A decades-long war on drugs, conducted globally, still raises a philosophical question: should we restrict supply or constrict demand?

Under the second Trump administration, tariffs and TikTok are front of mind. How much impact have previous rounds of tariffs imposed on Chinese goods?

I’d like to offer a quick snapshot, focusing on four big Chinese online shopping platforms.

Amazon pioneered online shopping by connecting consumers to goods through a convenient platform. China, the world’s factory, was the primary source for supply. 

Yet in 2024, four Chinese companies (AliExpress owned by Alibaba, TikTok by Bytedance, privately held Shein, and Pinduoduo-owned Temu) shipped goods internationally, worth almost $US 200 billion (up 90% year on year). Of that, approximately $45 billion was sent to the US.

In the US, the ‘de minimus’ threshold (whereby goods valued below $800 can enter the US without payment of duties or taxes) also helped.

High inflation pinched consumers, incentivising them to look for bargains – exactly what these Chinese platforms thrive on. But the most instrumental part, in my opinion, are their business models.

Their ability to access vast swathes of Chinese overcapacity in manufacturing, use efficient cross-border supply chains, operate on a consignment or semi-consignment centralised model while pricing goods 20-40% below Amazon, make them potent competitors.

Temu, for example, launched its online shopping in late 2022. In 2023 and 2024, it sold a staggering combined $70 billion worth of goods across the world.

Another linked datapoint – Meta reported approximately $9 billion of incremental advertising revenues from Asia Pacific customers, helped – in no small part – by spends from these four companies driving app downloads and customer acquisition.

On February 1, President Trump imposed — and almost immediately suspended — a 25% tariff on all goods from Mexico and Canada (only 10% on oil) while goods imported from China will have an additional levy of 10%.

We await the outcome of an expected call between Trump and Chinese president Xi Jinping this week to find out if tit-for-tat US-China tariffs will be paused as they were for Mexico and Canada.

For now, the China tariffs have removed the ‘de minimus’ loophole which benefited these Chinese companies in the past.

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In 2024, China’s trade surplus hit almost $US1 trillion.

Will a new round of potential tariffs dent China?

In anticipation of such an eventuality, Temu and Shein had already modified some of their operational procedures towards bulk shipping, diversifying logistics and expanding the their U.S. network.

Ironically, as TikTok’s future hangs in balance, Americans have flocked to another Chinese app: Xiaohongshu.

The broader point here is that when a product provides a value proposition far superior to American alternatives, tariffs might temporarily alter – but not permanently change – human behaviour. Only a complete ban can achieve it, as in the case of banning Chinese electric vehicle imports.

But for products sold by the Chinese online platforms, neither do they disrupt a high-value domestic industry nor are there big lobbies that clamour for protection.

In China, there is a proverb – “水滴石穿” (shuǐ dī shí chuān) – which translates loosely to “dripping water wears through stone”.

Only time will tell if the allure of cheap, convenient app-based shopping can be stopped by the walls of tariffs.

About Samir Mehta and Pendal Asian Share Fund

Samir manages Pendal’s Asian Share Fund, an actively managed portfolio of Asian shares excluding Japan and Australia. Samir is a senior fund manager at UK-based J O Hambro, which is part of Perpetual Group.

Pendal Asian Share Fund aims to provide a return (before fees, costs and taxes) that exceeds the MSCI AC Asia ex Japan (Standard) Index (Net Dividends) in AUD over the medium-to-long term.

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About Pendal

Pendal, part of Perpetual Group, is a global investment management business focused on delivering superior investment returns for our clients through active management. 

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