Temu and Shein have become part of South African culture. Not only are our social media feeds packed with their ads, many of us have bought products from them or know people who have. Aside from the crazy stories about utter rubbish arriving in a box (and we’ve all heard at least one of those tales), some of their products offer compelling alternatives to what you can buy in South Africa.
This has added a significant layer of competition to the South African retail market, affecting especially the value-focused retailers. In a country where consumers are permanently under pressure, quality and sustainability tend to be bigger priorities for higher-income shoppers, while affordability is the top priority for everyone else.
With Temu and Shein tapping into that value-conscious market and having already caused headaches for South African retailers, could the trade war make that situation worse and put further pressure on sales growth in categories such as clothing and general merchandise?
To form a view on this, we need to consider whether a structural decrease in demand in the US is a plausible outcome of the current geopolitical environment. We then need to ask whether South Africa is at risk of product dumping by Chinese players with excess inventory.
Answering the first question is arguably more difficult. Much of the debate in the market has focused on the impact of tariffs on US-based retailers with Chinese supply chains, which means everyone from giants such as Apple to niche retailers. Less attention has been paid to the impact on Chinese retailers and manufacturers and the route-to-market for their products, as Western media houses focus more on the impact on companies that are more “investable” for their audience.
The current situation is one of ongoing uncertainty around exactly where the tariffs will land. Though it seems the recent meeting between the US and China in the UK may have been fruitful, there’s still no guarantee of a deal. Aside from tariffs, the countries are also negotiating around rare earth minerals and increasing trade through opening up each market to more products from the other. It’s a rather odd situation that looks like a trade war on one end and a desire to collaborate on the other.
With Temu and Shein tapping into that value-conscious market … could the trade war make that situation worse?
The stats tell us that China-US trade has dropped dramatically in the past couple of months, thanks to outrageous temporary tariffs that made it almost impossible for Chinese products to be viable in the US market. Of course, this is just a Trump tactic to get the parties to agree to something more “reasonable” than the initial salvo that anchors the negotiations at an extreme level. To know for sure whether there is dumping risk in global markets, we’ll need to wait and see what the sustainable drop in trade flows looks like.
In the likely situation that at least some US demand falls away due to tariffs, Chinese suppliers will need to find new markets. Europe seems the obvious alternative from an affordability perspective, but the practical differences to the US market may make this too difficult.
For example, the European market is generally more regulated than the US market — in fact, these regulations are part of the broader cultural differences that are often cited as stifling growth in Europe vs the US. There are numerous reports of European regulators and consumer bodies having tested Chinese imports and finding low levels of compliance. And aside from the obvious things such as meeting safety requirements, there are also costs related to the need to provide product information in multiple European languages.
The South African market is woefully inadequate to replace any drop in US demand that cannot be absorbed by Europe. In practice, South Africa would likely be one of many markets targeted by Temu and Shein for greater consumption. The South African Revenue Service closed the de minimis loophole — a measure that allowed the duty-free shipping of low-value packages from China — late last year. However, we have a close relationship with China and it’s unlikely that we’ll see anything close to the regulatory steps that the US and Europe may take against it.
For South African retailers, the best outcome would be a US-China trade deal that allows Chinese sellers to keep focusing on the US market, even if it’s not as lucrative as before. Anything else is bearish for the local sector.
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