Amazon.com’s (NASDAQ:AMZN) pricing dominance is crippling PDD Holdings (NASDAQ:PDD) owned Temu’s efforts to rebuild its U.S. retail strategy after the Trump administration ended duty-free imports from China.

As Temu shifts toward sourcing from U.S. suppliers, it faces a significant hurdle: sellers won’t undercut Amazon on branded goods, fearing the loss of visibility and sales on the e-commerce giant’s platform.

Several U.S. vendors have warned Temu that it must offer materially different products, as Amazon aggressively matches or beats prices and controls the “buy box”, a critical driver of purchases, the Financial Times reported on Sunday.

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Amazon’s ability to absorb losses to maintain low prices gives it an edge that smaller rivals like Temu can’t match without burning billions.

Temu’s pause in U.S. ad spending earlier this year, after dropping $1.4 billion on Meta Platforms (NASDAQ:META) Facebook and Instagram in 2023, led to a sharp decline in engagement.

The number of monthly active users on its U.S. app plunged 54% between March and mid-July. Although it resumed advertising in late June, the platform remains defensive.

With limited control over pricing and increasing pressure from Amazon’s vast seller network, Temu is now exploring alternatives like off-brand or returned inventory, bulk discounting, and lower-fee seller incentives.

But unless its parent company, PDD, is willing to sustain steep losses, analysts say Temu must take a smarter, more differentiated approach to survive the U.S. market squeeze.

Beyond direct competition, Temu’s woes are compounded by evolving U.S. trade policy. The White House’s decision to terminate the “de minimis” rule, which previously permitted tariff-free imports valued under $800, has stripped Temu of a key cost advantage. This policy shift directly impacted Temu’s U.S. daily users, which plummeted by 58% in May, according to Sensor Tower data.

In response, Temu has significantly curtailed its U.S. ad spending and initiated a shift towards domestic fulfillment, marking China-shipped items as “out of stock” on its platform. This operational disruption exerted a tangible negative impact on PDD’s first-quarter results, with reported revenue falling short of analyst estimates and operating profit decreasing by 36% as profit margins contracted sharply.

The platform’s adjustments have been swift and substantial. Temu effectively halted direct shipments from China to U.S. customers in May, a direct consequence of adjusting to the reintroduction of 145% tariffs and the termination of the duty-free import rule.

Currently, the platform primarily lists U.S.-shipped items, signaling a pronounced departure from its previous low-cost, China-centric supply model. Facing steep import duties, Temu briefly imposed surcharges ranging from 130% to 150% before transitioning to an “out of stock” designation for China-sourced goods.

The retailer is now aggressively recruiting U.S. sellers to maintain competitiveness, a strategy observed concurrently with rivals like Shein, which are reportedly raising prices to offset similar tariff pressures.

Despite these significant operational headwinds for Temu, PDD’s stock has demonstrated resilience, gaining over 22% year-to-date, in contrast to Amazon’s approximate 6% returns.

The ongoing recalibration of global supply chains and evolving trade policies underscore the dynamic and increasingly complex landscape for e-commerce enterprises.

Price Actions: AMZN stock is trading higher by 0.56% to $232.73 premarket at last check Monday. PDD is up 0.50%.

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