• The recent 10% tariff on Chinese imports, along with the suspension of the de minimis exemption, will increase costs for e-commerce businesses, particularly those relying on low-value goods.
• These changes are set to disrupt the global e-commerce sector, particularly for Chinese companies such as Alibaba, Pinduoduo and Shein.
• Despite the increased pressures of the trade war, Pinduoduo’s outlook remains strong and with the stock arguably undervalued, the overall investment proposition remains compelling.

Tariffs on goods from Canada, China and Mexico were scheduled to take effect this week, sending financial markets into a tailspin on Monday. But last-minute bargaining led to temporary relief, with the tariffs on Canada and Mexico delayed for 30 days. Despite this, President Trump’s 10% blanket tariff on Chinese imports was imposed Tuesday, signaling an escalation in the simmering U.S.-China trade war. 

Besides the tariffs, Trump also suspended the “de minimis exemption,” a policy that has allowed small-value goods to enter the U.S. without tariffs. This change could have profound implications for Chinese retailers, such as Pinduoduo (the parent company of Temu) and Shein, both of which have relied heavily on this loophole to help maintain their bargain prices.

Trump suspends long-standing trade loophole

The de minimis exemption allowed goods valued under $800 to enter the U.S. without incurring duties, providing a material advantage for e-commerce platforms like AliExpress, Shein and Temu.

With this cost advantage, online retailers in China have offered low-priced products directly to U.S. consumers, enabling them to undercut online American competitors like Amazon (AMZN) and American bricks-and-mortar stores. As a result, these platforms have seen a surge in popularity (highlighted below). Temu, alone, is projected to collect revenue of $30 billion this year from the U.S. market. 

This week, Trump suspended the de minimis exemption, meaning the goods previously falling under this threshold will now be subject to the same import regulations and tariffs as other products shipped to the U.S. Additionally, a new blanket tariff means virtually every product coming from China is subject to an import tax of at least 10%—and for many products that figure is even higher. This shift is expected to affect not only e-commerce platforms like Shein and Temu, but also larger retailers with extensive exposure to Chinese suppliers.

Amazon, for instance, counts many Chinese companies among its global suppliers and will likely feel the effects of these changes. AliExpress, a subsidiary of Alibaba (BABA), will also be affected. But Alibaba is more diversified than Shein and Temu, which likely contributed to its stock being less-affected by the tariff news. Pinduoduo (PDD)—the parent company of Temu—faces a more direct risk from these seismic shifts in U.S. trade policy. 

Imagine, for example, a U.S. consumer who previously purchased something for $799 from Temu. Under the de minimis exemption, that product could be shipped without tariffs. Beginning yesterday, however, that merchandise is subject to a 10% tariff, effectively raising the price by $79.90 to $878.90 (10% of $799 = $79.90). This shows why tariffs often hurt consumers the most—import taxes are typically passed down the supply chain, ultimately raising the cost of goods for end users.

What it means for Chinese e-commerce 

Closing the de minimis loophole will significantly affect companies like Shein and Temu (a part of Pinduoduo). These companies have benefited not only from avoiding tariffs but also from cheaper shipping rates because small packages could be sent via the U.S. Postal Service at discounted prices. With suspension of the exemption, both companies will now face tariffs and higher shipping costs, undoubtedly leading to higher prices for American consumers. 

On a positive note, the new tariffs arguably help level the playing field with other American retailers, particularly Amazon, which has struggled with the competitive pressure of low-cost Chinese imports. However, enforcement challenges remain, and some experts believe U.S. customs may not have the capacity to inspect every small package, potentially reducing the impact of the tariffs. Nonetheless, these changes will disrupt operations for Temu and Shein, forcing them either to raise prices or adjust their business models to absorb the higher costs. They might even take both actions.

For Pinduoduo, these developments could weigh on near-term business prospects. As a publicly traded company, it’s more exposed to market reactions than Shein, which had initially aspired to go public in the U.S. but is now targeting an initial public offering (IPO) in London. As a closely scrutinized public company, Pinduoduo will have to navigate the new landscape, managing higher operational costs and a potential shift in consumer behavior. 

Pinduoduo’s strong Q3 performance

In its most recent quarterly earnings call, Pinduoduo reported a robust revenue surge, with total revenue reaching $14 billion, reflecting a 44% year-over-year increase. This growth was fueled by strong performances both in online marketing and transaction services. The company also reported operating profits of $3.5 billion, up 46% from the previous year, and net income of $3.6 billion, an impressive 61% increase. These results highlight the company’s ability to drive business growth, particularly through strategic merchant support initiatives.

However, the company also experienced higher expenses, particularly in sales and marketing, which rose 40% year-over-year to $4.3 billion. Increased competition in e-commerce also led to a slight moderation in growth of revenue. A portion of these cost increases can be attributed to Pinduoduo’s significant investment in its shopping system, which could drive growth and unlock opportunities.

Looking ahead, the suspension of the de minimis exemption and new tariffs on Chinese imports pose operational challenges for Pinduoduo. Despite strong cash flow and a solid balance sheet—holding around $44 billion in cash and short-term investments—these external factors are likely to challenge near-term financial projections. Higher tariffs and shipping costs are expected to reduce sales and raise expenses, putting pressure on profitability. However, with the e-commerce market continuing to grow (as illustrated below), Pinduoduo’s prospects remain strong, with significant potential for growth over the long-term.

Pinduoduo’s valuation looks compelling

Besides strong financials, Pinduoduo appears to have another thing going for it—an attractive valuation. Despite recent challenges, the stock is arguably undervalued, particularly now that much of the uncertainty surrounding potential tariffs and the de minimis exemption have been resolved. While these changes may have a negative effect on near-term results, the clarity now surrounding the company’s outlook may actually be more positive for investors because it removes the regulatory and trade-related uncertainty that once loomed over the stock.

Pinduoduo’s price-to-earnings ratio (P/E), currently around 10, stands well below the sector median of approximately 19, indicating the stock is undervalued compared to its industry peers. While its price-to-sales and price-to-book ratios are two- to three-times higher than the sector median, these figures are more palatable in light of the company’s impressive growth. The ability to increase revenue and profits consistently, even amid external headwinds, suggests it is trading at a fair, if not discounted, price.

The stock’s positive analyst sentiment supports the case for its attractive valuation. Of the 52 analysts covering Pinduoduo, 44 rate the shares a “buy” or “overweight,” with only one analyst assigning a “sell” or “underweight” rating. The balance maintain a “hold” position, indicating confidence in the company’s prospects. Additionally, the average analyst price target for the stock is $150 per share—well above its current trading price of $110 per share—reinforcing the argument that Pinduoduo presents an appealing investment opportunity.

Considering the solid financial position, the removal of tariff-related uncertainty and the strong analyst outlook, Pinduoduo appears to be under-appreciated from a valuation perspective. 

Takeaways

In an unusual turn, what might seem like a setback for Pinduoduo could actually turn out to be a long-term advantage. The suspension of the de minimis exemption banishes much of the regulatory uncertainty that hung over the company. With the same rules now applying to all companies, it will be harder for business leaders and politicians to criticize Pinduoduo’s business model, enabling the company to operate with greater clarity and less distraction.  

Another advantage for Pinduoduo is the emergence of AI technologies like DeepSeek in China. With a history of leveraging innovation to drive growth, the company is poised to take advantage of AI’s potential to streamline operations, improve marketing strategy and enhance the customer experience. As China continues to make strides in AI, local platforms like Pinduoduo could gain additional advantages in the rapidly evolving e-commerce business.  

With the trade war between the U.S. and China once again intensifying, Pinduoduo’s stock may face increased volatility in the near term. However, this volatility could also create opportunities. The stock, currently trading at $110/share, is well below the average price target of $150, with 44 of 52 Wall Street analysts rating it as a “buy” or “overweight.” If the stock dips sharply because of market volatility, it may actually present an attractive entry point for investors holding a bullish long-term outlook. 

Andrew Prochnow has more than 15 years of experience trading the global financial markets, including 10 years as a professional options trader. Andrew is a frequent contributor Luckbox magazine.

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