Washington’s envisioned clampdown on the tax-free import of Chinese goods imposes one more layer of uncertainty on consumer-sector mavens from Alibaba Group Holding Ltd. to Temu who are already struggling to cope with a consumer crisis back home.

Alibaba and smaller rival JD.com Inc. sagged about 2 percent 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 percent 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 percent 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.”

By Olivia Poh and Jeanny Yu

Learn more:

A Reality Check for Temu

Growth is slowing, competition is getting intense and regulators have the fast-fashion retailer in their sights. But despite investor panic over its prospects, Temu remains an e-commerce powerhouse — one that Western competitors must continue to watch.

In a corner of Covent Garden, well-heeled Londoners and tourists browse the range of frankincense products sold by a leading cosmetics brand while they drink a complimentary rose and berry tea. Amid the aromatic resin sheathed under glass, shoppers can buy “age-defying” serums, creams and essences, and tablets to strengthen brittle nails and hair.

At one counter, a sales assistant is advising customers on how much of the essential oil to add to their nebuliser to make guests feel relaxed “without overwhelming them”. Another explains frankincense’s “hydrating and rejuvenating” properties, including its alleged ability to smooth out fine lines caused by smiling and squinting. In terms of popularity, she says, it now far outstrips lavender, tea tree and other botanicals.

“Frankincense is our signature product – our bestseller,” she says.

It also fetches high prices. Here, a 50g bottle of frankincense firming cream costs upwards of £80, as does a 15ml vial of eye serum from a line sold next door. In another shop, a luxury French brand sells “virile” perfumes infused with frankincense for hundreds of pounds a bottle. An American aromatherapy company hails frankincense as the “king of essential oils” and claims it can promote cellular health and immunity. Their 15ml bottles retail at $115 (£88).

Frankincense has been harvested in the Horn of Africa and across the Red Sea in the Arabian peninsula for millennia. In ancient Egypt, it was prized for its deep, woody fragrance. The three magi are supposed to have brought a gift of it to the baby Jesus along with gold and myrrh, and many churches still burn it during services.

Until about 20 years ago, “the demand for frankincense was mostly from churches,” says Frans Bongers, professor of forest ecology and management at Wageningen University in the Netherlands. Recently, however, this ancient resin has become a hot commodity globally as its alleged health benefits catch the attention of the wellness industry, a sector worth about $5.6 trillion a year.

“Now big companies are buying up everything they can,” Bongers says. “Anything you can produce, there is a market.”

Frankincense extraction, however, remains firmly rooted in its ancient past. Supply chains are murky and fragmented, often marked by exploitation and violence, and dominated by middlemen, who skim off most of the raw resin’s value.

Although most western wellness companies claim to source their products ethnically and sustainably, it is often impossible to trace frankincense sold in New York and London back to the people who harvest it, often in extreme poverty.

And there is mounting evidence that the substance’s newfound popularity could be driving wild frankincense trees to the brink of extinction.

In Tseykeme, a village of stone farmsteads in northern Ethiopia 3,400 miles from the expensive shops of Covent Garden, a small copse of frankincense trees clings to a rocky hillside. Their twisting branches are gnarled, and the flaky, paper-like bark resembles that of a birch. The trees’ trunks bear scars: raw red patches where the bark has been crudely hacked away.

Frankincense thieves come here almost every night, says Demstu Gebremichael, a local farmer. Usually, they work by moonlight, but Demstu can sometimes see the flash of torches as they scrape away the valuable white sap oozing from cuts in his trees.

For decades, 78-year-old Demstu harvested the frankincense himself, loaded it on to camels, and sold it in the nearest town, Abi Adi. The small sums of money it generated supplemented his income as a subsistence farmer. “This is how we bought things like clothes and school materials for the children,” says Demstu.

These days, however, he harvests “almost nothing”. The resin is stolen before he can collect it. Standing beneath one of his 36 frankincense trees, Demstu tells of beatings meted out to neighbours who confronted the thieves, mostly local young men who have lost their livelihoods to war and drought.

“People need to survive somehow,” says Demstu, “so they turn to this.”

As more people extract the resin from a shrinking number of trees, the future of the species – and of local farmers – is under threat. One of the first warnings that frankincense was teetering towards extinction came in 2011: a study of Boswellia papyrifera in northern Ethiopia predicted that 90% of the trees could disappear by 2060.

This is the main variety of frankincense tree, accounting for two-thirds of global resin production. In another paper, published in Nature in 2019, scientists found that forests of Boswellia papyrifera were not regenerating and estimated that frankincense production would halve within two decades before forests died out altogether.

The trees are being hit by fires and droughts, which degrade soils and leave the trees vulnerable to blowing over in high winds, according to the Nature study. Seeds are gobbled up by goats and cattle. But the biggest culprit, however, is overexploitation.

Like maple syrup, frankincense is harvested through “tapping” – making well-spaced, shallow cuts in the bark and allowing 10 to 15 days for the resin to ooze out and harden. After they are tapped, trees should be allowed to rest for several months. If too many cuts are made, destructive beetles and fungi get inside, killing the tree.

Researchers found that frankincense trees in Sudan, Ethiopia and Eritrea were subject to “reckless” over-tapping, with too many cuts made too close together, too deeply and too often to meet soaring international demand.

The “dramatic consequences” mean that old frankincense trees are “dying fast”, researchers say, with too few young saplings to replace them. It has produced a vicious cycle: fewer treesmeans existing ones are tapped more and more intensively.

Bongers, a co-lead author of both studies, says the warnings have largely been ignored. “People say, ‘I don’t see the problem,’” he says. “They just don’t believe me and go on harvesting.”

There are five main varieties of frankincense-producing Boswellia trees. All are found in rocky, dry places such as northern Ethiopia, where water is scarce and the soil poor – and they are notoriously difficult to cultivate. Anjanette DeCarlo, a scientist and founder of the Save Frankincense project, who has researched the species for nearly two decades, describes them as “the ultimate alchemists”.

The largest concentrations of frankincense trees are found in Sudan, Ethiopia, Eritrea, Somalia, Yemen and Oman. In addition to entrenched poverty and the climate crisis, many of these countries are also ravaged by internal conflicts. In Somalia, jihadists are a constant threat, while Yemen has been gripped by civil war since 2014. Not only does insecurity hinder conservation by making ecologists’ work harder, it also destroys livelihoods and encourages local people to harvest frankincense at a time when demand is soaring.

In Tseykeme, there is no electricity or running water. This part of northern Ethiopia was already one of the world’s poorest regions when civil war broke out in 2020-22, killing hundreds of thousands of people, many from hunger and disease. Burnt-out military vehicles still litter the road and the local government building has been gutted by looters. Now the local economy is in tatters.

A crushing drought has compounded the destruction, transforming the area into a dust bowl; farmers have harvested nothing for four years. In January, local officials warned of looming famine and pleaded with humanitarian organisations to increase aid urgently.

Buruh Abebe Tetemke, a forestry lecturer at Mekelle University, the region’s main academic institution, last visited Tseykeme 20 years ago as a postgraduate student.

“When I came here, it was dense with frankincense trees, but they have been cleared for farmland,” Buruh says, gesturing to the increasingly barren landscape. “You can see now they are scattered and survive in just a few places. You can’t really call it a forest any more.”

On one small copse of frankincense trees, large strips of bark have been inexpertly scraped away, probably with an axe. As small, sticky pearls of white frankincense form in cut areas, parts of the surviving bark have turned black. “Doing it like this is extremely damaging and will eventually kill the trees,” says Buruh.

Twenty-six-year-old Meaza and his friend are sitting in the shade of another group of frankincense treesas they take a break in the afternoon heat. Battered tins of sticky resin by their feet still bear faint US flag logos, previously contained emergency food aid.

Before the war, Meaza was a carpenter who made furniture. The work had always been “unpredictable and irregular”, but orders disappeared because of conflict and drought. Today, he scrapes a living by illicitly collecting frankincense.

“This is better, makes more money and requires less energy,” says Meaza, adding that the price for frankincense has shot up in recent years. “We move from tree to tree, but each one only produces a little bit of resin.”

Meaza estimates it will take him three days to fill his tin. In Abi Adi, a day’s walk away, he can sell it for 700 Ethiopian birr (£5).

“There is a massive disconnect between consumers and western companies on one hand, and what actually happens on the ground,” says Stephen Johnson, an ecologist and director of FairSource Botanicals. A wellness company in New York might make $200 a kilo, compared with $2 a kilo paid to harvesters, he says.

“Demand has gone through the roof,” says Johnson. “Everyone wants frankincense, but there has been no accompanying increase in the transparency of the supply chain, which is historically very exploitative in the way it treats smallholders and provides incentives for over-harvesting.”

Discussions are under way on whether to protect Boswellia under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (Cites) – a move that could lead to an outright ban on collecting frankincense.

However, DeCarlo is against listing the trees, arguing this would only drive the frankincense trade underground, fuel corruption and potentially destroy the livelihoods of vulnerable people. In two areas of Somalia, for example, 225,000 people derive between 57% and 72% of their income from the frankincense trade.

Instead, DeCarlo calls for more support for the farmers who harvest frankincense. “The smallholders protecting these trees are completely passed over,” she says. “There’s no support, no training, no investment … It’s just crazy.”

In Abi Adi, a small town under rocky red cliffs, Goyteom Tekele, a young farmer, is with his two donkeys outside the two-room warehouse of a frankincense wholesaler, Tesfaye Merasa, waiting to sell several sacks of resin-encrusted bark. The material has been collected, he says, from trees blown over by the wind.

Tesfaye will take his stock to Addis Ababa, Ethiopia’s capital, 620 miles away. There, it will be sorted and graded by hand and then shipped abroad.

As he shows us around, Tesfaye takes out a large chunk of frankincense resin weighing several kilograms. Business is good, he says. “We can’t hold of enough. Demand is far greater than the supply.”

By Fred Harter

Learn more:

Why Beauty Brands Want a Bigger Piece of the $1.5 Trillion Wellness Pie

The State of Fashion: Beauty finds that brands have a growing opportunity to tap into emerging wellness subcategories — from sleep to sexual intimacy to ingestible beauty — by upgrading existing products or expanding portfolios, provided they do so with credibility and authenticity.

This week, we are pleased to introduce one new partners on BoF Careers.

Aesop was founded in 1987 by Dennis Paphitis, who began experimenting with essential oils in hair products in his salon in Melbourne. Today, the skin and body care brand has grown into a global retail business, with product ranges now including hair care, fragrances and accessories for the self and for the home.

The brand has a retail footprint of almost 400 stores and counters worldwide, as well as a network of thousands of employees. It was bought by L’Oréal Luxe in 2023 and is a Certified B Corporation. Aesop is currently hiring for a store manager in London, CRM manager in New York, a retail training and performance manager in Hong Kong, among many more global roles.