China’s e-commerce giants are putting up a fight

China’s e-commerce players are perhaps the most exposed to the trade war, the exception to arguments that the country’s tech sector will be able to weather the storm. 

If President Donald Trump’s tariffs hold, it would be devastating for the business models of PDD Holdings Inc.’s Temu, Shein, Alibaba Group Holding Ltd.’s international retailers, and the thousands of small Chinese companies making goods for export. But the levies have galvanized them to support each other in unprecedented ways. And Americans have simultaneously shown an unwillingness to let their access to cheap imports go.

Chinese tech giants are working to help exporters find buyers in the domestic market. JD.com Inc. said earlier this month that it would purchase at least 200 billion yuan ($27.4 billion) of goods from exporters over the next year and help sell them at home. PDD pledged to invest 100 billion yuan to help its sellers pivot to local consumers. Alibaba’s supermarket chain launched a new channel for firms looking to sell at home. Internet giant Baidu Inc. pledged free advertising services for a million companies. Even companies not immediately exposed to tariffs, such as ride-hailing app DiDi Global Inc. or internet giant Tencent Holdings Ltd., have joined the crusade.

The efforts, combined with government stimulus programs aimed at boosting consumption, lifted China’s retail sales by 5.9% last month, beating estimates and marking the best pace since December 2023. It’s not yet clear if this will be enough to offset the impact from prolonged tariff pain. But if this strategy does succeed, it would show how Washington’s approach has backfired and forced Beijing to further trade-war-proof its economy. 

Trump also seems to have miscalculated how his home base would respond when access to cheap Chinese e-commerce goods is cut off. It has driven hordes of Americans to do even more international bargain-hunting. The impact will really hit home now that Shein Group Ltd. has raised US prices ahead of tariffs on small parcels: Health and beauty products are increasing by 51% and women’s clothing by 8%.

US consumers have flocked to Chinese retail outlets. Downloads of Alibaba’s app have surged 34% year-to-date compared to the same period last year, according to data from market intelligence firm Sensor Tower, while DHGate and Taobao (the latter is owned by Alibaba) have rocketed 78% and 420%, respectively. It’s a notable spike given Sensor Tower estimates that Alibaba has pulled back on advertising spending in the US by nearly 45% so far this year.

The figure exposes how the unwinding of Chinese e-commerce in the US will hit revenues for Silicon Valley titans like Meta Platforms Inc. and Alphabet Inc.’s Google. Temu and PDD have been some of the largest buyers of ads on the platforms. In the wake of the fresh tariffs, the companies’ US advertising has cratered.

Some of the interest in Chinese wholesale retailers may have been instigated by a rash of viral videos from suppliers and manufacturers, touting the high quality and low price of goods from the “world’s factory,” and putting international brands they claim to work with on blast. This messaging highlights China’s advantages — including access to its deeply integrated and nimble supply chains. They also suggest that exporters are no longer just trying to compete on cost, but also on quality and value. These follow a separate blitz of AI-generated videos and memes from China mocking US workers trying to recreate this manufacturing ecosystem.

It will still no doubt be painful for Chinese e-commerce to weather extended tariff turmoil. The domestic pivot could just be a Band-Aid, and further escalations could eradicate American consumers’ interest. Policy rollbacks and uncertainty make it impossible to predict how sustainable these initial trends are.

But there are some lessons: Nothing galvanizes China to come together like attacks from the US, and little rouses American consumers like the threat of losing access to cheap goods. If this trade war tips the US into a recession, it will only further the desire for bargain prices, while doing little to bring back business investment or manufacturing.