Alibaba and smaller rival JD.com Inc. sagged about 2% in Hong Kong Monday, as investors parsed the potential fallout from US plans to begin taxing packages worth less than $800. That all but slams shut a loophole that PDD Holdings Inc.’s Temu and fashion-focused competitor Shein have employed for years to ship hundreds of millions of packages into the US annually, carving out a market at the expense of Amazon.com Inc. PDD slid 2.4% Friday.

The move threatens to reshape parts of the US retail arena and deflate the excitement that’s accompanied the meteoric ascent of bargain bazaars like Temu, Shein and Alibaba’s AliExpress. It also hit shares of other US-reliant retailers such as Australian fashion outlet Cettire Ltd. on Monday. 

But analysts expect Shein and Temu to take the brunt of the crackdown, depending on the extent and size of tariffs set.

“While the market has been expecting the US Administration might announce action to change/reform the de minimis exemption, it was still considered as a negative development,” Citigroup Inc. analyst Alicia Yap wrote in a research note. “The lack of visibility on implementation timing and potential impact will remain an overhang to share price performance near term.” 

White House officials on Friday announced they intend to propose rules that would rein in use of the so-called de minimis exemption, which allows products worth less than $800 to go directly to consumers without customs declarations or duties. The measures are aimed at reducing tariff evasion and preventing fentanyl-laced shipments.

Investors have braced for the move for some time. The European Commission has kept the ultra-fast-fashion industry in its sights since at least 2021, when President Ursula von der Leyen denounced it as “poison” due to the environmental impact of disposable clothes. US officials also worry about the prospect of other illegal items — like drugs — slipping into the country.

In separate statements, Temu and Shein pointed out their growth wasn’t contingent on the tax-free policy. The two Chinese-linked firms said they would focus on business efficiencies and keeping consumers happy. 

“Our success is anchored in our unique on-demand business model,” Shein said in its statement, adding that it “called for de minimis reform to create a level, transparent playing field – where the rules are applied evenly and equally.”

Investors are adopting a wait-and-see attitude for now, though the impact is expected to be broad. Amazon, for instance, has come under pressure from Temu and Shein — so much so that it’s developing a discount marketplace on its platform for Chinese merchants to ship direct to the US.

“The clear positive is the potential reduction in competitive pressures from China-based exporters, with impact across marketing cost and demand,” Morgan Stanley analysts led by Nathan Feather wrote, outlining how US retailers like eBay Inc. and Etsy might benefit. Still, they said, both of those companies “have Chinese seller bases.”

Shein, which is preparing for an initial public offering that could value the Chinese apparel giant north of $60 billion, pioneered the model of targeting cost-conscious Americans with $2 blouses and $10 shirts during Covid. Temu jumped in around 2022 with its “Shop Like a Billionaire” catchphrase, rapidly becoming one of PDD’s biggest growth drivers worldwide.

Analysts estimate Temu accounts for a low-teen percentage of PDD’s overall business — though a large chunk of that is from the US. Temu likely handled about $20 billion of gross merchandise volume in the first half of 2024, of which about 40% came from America, Jefferies analyst Thomas Chong estimates. And the explosive growth that crowned PDD a market darling is already showing signs of petering out, hammered by China’s unrelenting consumer downturn. 

As for Shein, it can ill-afford any uncertainty ahead of its market debut. And both are coming under intensifying scrutiny in the US, as its relationship with China comes into focus ahead of the November elections. 

“Geopolitical risks have long been a concern to investors, in particular the tariff issue related to cross-border e-commerce,” Chong wrote. “Compared to overseas peers, we expect Temu to maintain pricing advantage, as the former do not charge commissions and operate on a low-price model.”