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Shein Wants to Diversify Its Supply Chain. China May Not Let It.
Jasmin Malik Chua
7 min read
As tariffs being lobbed between the United States and China enter the triple figures, Shein has a critical decision to make: protect its financial health or obey Beijing.
On Tuesday, Bloomberg reported that the Chinese-founded e-tail juggernaut’s plans to rejigger its supply chain—still largely based in southern China—hasn’t been well-received. The news comes amid the Chinese government’s scramble to stem a potential manufacturing hemorrhage, along with the job losses that this would entail, from President Donald Trump’s aggressive “reciprocal” import taxes, which have crept up from 20 percent in January to 54 percent last week. By noon on Wednesday—the deadline for Beijing to rescind its retaliatory tariffs on Chinese goods—the figure will have swelled to 104 percent.
“Countries like China, who have chosen to retaliate and try to double down on their mistreatment of American workers, are making a mistake,” White House Press Secretary Karoline Leavit told reporters on Tuesday, as the stock market continued to crater despite a brief rally in the morning. “President Trump has a spine of steel, and he will not break.”
China’s Ministry of Commerce, an unidentified source told Bloomberg, has communicated with Shein and other companies to dissuade them from any thoughts of diversification. While Shein did not respond to a request for comment, this person said that the Singapore-headquartered firm has hit pause on the reconnaissance tours it had been arranging for major Chinese suppliers of factories in Vietnam and elsewhere in Southeast Asia. Shein, according to its 2023 impact report, has also fanned out some of its manufacturing to Brazil and Turkey, whose additional 10 percent tariffs—the lowest tier of the most recent pummeling—are likely making sourcing from them even more attractive.
But sticking to China could obliterate Shein’s low-cost advantage. The Missguided owner can no longer exploit the so-called de minimis exception to sidestep additional tariffs, duties or taxes on packages worth less than $800. That loophole, according to an executive order signed by Trump last week, will close to goods originating from China and Hong Kong on May 2. With Tuesday’s amendments, that means that the $5 tank tops and $10 dresses that once slipped in tariff-free will be subject to a duty rate of either 90 percent of their value (a significant hike from the 30 percent levied only a week ago) or $75 per item (formerly $25) until June 1, following which the surcharge will be $150 per item (previously $50). Shein isn’t a public company—not yet, anyway—but the announcements have caused the shares of affiliated businesses, such as quality inspection service provider Jiacheng International Logistics Co., to tumble by up to 7.7 percent.
At the same time, Shein doesn’t source from China just as a matter of patriotism, even though most of its owners, including its reclusive founder Sky Xu, are Chinese nationals. Southern China’s highly integrated apparel supply chain, comprising thousands of factories both large and small that churn out everything from fiber to finished garments, “effectively meets Shein’s demand for diverse styles of products in small batches,” said Sheng Lu, professor of fashion and apparel studies at the University of Delaware. The region’s first-class logistical infrastructure, state-of-the-art equipment and highly skilled workforce also enable China to maintain a leg up over other Asian suppliers despite its higher wages.
In short, Shein is between a rock and a hard place. Unlike Temu and Amazon, which can leverage U.S.-based warehouses to stock products, Lu said, the e-commerce giant’s ultra-fast fashion business model requires the company to be in a constant state of designing and pumping out products, “making it impossible for Shein to import products far ahead of the actual selling days.”
“Additionally, Shein primarily attracts consumers by frequently offering trendy items at low prices,” Lu added. “Losing these price advantages and slowing down its design, production and delivery processes could be detrimental to the company.”
Even without Beijing breathing down its neck, moving to lower-tariff destinations—relative to China, anyway—like Cambodia (49 percent) or Vietnam (46 percent) wouldn’t be easy, either. Despite Vietnam’s strides in the manufacturing space, it still lags far behind China in the vertical integration that buttresses Shein’s fast and flexible production model. The breadth of products China offers is another consideration. Case in point: While the types of apparel made by what Lu calls the “Asia 5”—meaning Bangladesh, Cambodia, India, Indonesia and Vietnam—have edged up over the past year, they can only fulfill 71 percent of the tops and 47 percent of the dresses that China supplies.
“Also, most other Asian countries like Vietnam are much smaller than China, meaning their production cost could go up quickly if everybody plans to move there,” Lu said. ”And we cannot rule out the possibility that future legislation by the U.S. Congress or the Trump administration may impose a sector-wide ban on de minimis, which could affect all apparel products regardless of where the item is made. Thus, moving out of China may not alleviate Shein’s concerns in the long run.”
Adding to that is the fact that the European Union is looking to stitch shut its own de minimis loophole by phasing out customs duty exemptions for parcels under 150 euros ($164.50). Not only do the billions of low-value products that enter the EU each year frequently skirt the bloc’s laws, the European Commission said in February, but they also endanger European companies that follow the rules regarding unsafe or counterfeit goods.
“We have seen a surge in low-value products sold by non-EU traders sold by online marketplaces,” commission vice-president Henna Virkkunen said in a statement. “Many of those products, they have been found to be unsafe, counterfeited or even dangerous, so they are not often meeting our standards.”
In 2024, 4.6 billion low-value parcels entered the EU, or three times more than in 2022, making it an arguably bigger problem than in the United States, where similar shipments hit nearly 1.4 billion last year. What is clear, however, is that the Sheins and Temus of the world are facing an existential threat. And with Shein already being pressured by investors to slash its $66 billion valuation to $30 billion ahead of its rumored London IPO, even as it continues to face scrutiny over its labor rights record, it may need to rewrite its playbook.
The math isn’t working anymore, said Maggie Barnett, CEO at LVK, a third-party logistics company, and COO at ShipHero, a warehouse management platform. On LinkedIn, she has been advocating a “hybrid” model of fashion that isn’t fast or slow but somewhere in between.
“Fast fashion operates like a casino: high-volume bets on trends with quick payoffs but inevitable long-term losses in unsold inventory, sustainability reputation, and customer loyalty,” she said. “Slow fashion, while environmentally and ethically conscious, often can’t compete with the quick retail-therapy dopamine hit of trend-chasing commerce. The hybrid fashion model takes a different approach. It’s about being deliberate in what you produce quickly versus what can move at a more measured pace.”
While many may ”lament the evolution of $15 dresses and weekly collection drops,” the opportunity ahead to create “businesses that are environmentally mindful, financially sustainable and genuinely responsive to how consumers actually live and dress,” is far more exciting, Barnett said, adding that relying solely on Chinese manufacturing is too risky and that brands need to prioritize flexibility over optimization.
“We don’t need to view pivoting as a last-ditch effort or the end of exciting industry disruption; it’s the beginning of the next stage of adaptive growth,” she added. “The companies that are malleable and recognize this shift early—that understand optionality is the new optimization—will shape the future of retail fashion.”
