“Tariff Advantage Fades as Regulatory and Productivity Barriers Mount” Shein Scales Back in Vietnam, Failed Supply Chain Overhaul Compounds IPO Pressure

China’s Shein reduces leased space at major Vietnamese logistics hub
End of US de minimis exemption and tariff adjustments erode advantages as production constraints emerge
Earnings deteriorate sharply ahead of Hong Kong IPO, sending valuation plunging

Chinese fast-fashion company Shein is scaling back its logistics hub in Vietnam. The abolition of the US de minimis exemption and the narrowing tariff differential between Chinese and Vietnamese goods have weakened the rationale for maintaining the facility, while low local production efficiency and tighter regulation have further undermined its supply chain restructuring strategy. These developments have eroded Shein’s profitability and valuation, leaving the company under mounting pressure to demonstrate a credible growth trajectory ahead of its Hong Kong initial public offering (IPO).

Shein Scales Back in Vietnam

Reuters reported on August 10, citing six sources familiar with the Vietnamese market, that Shein was significantly downsizing a large logistics hub near Ho Chi Minh City. Shein began leasing the 15-hectare bonded logistics hub early last year. Equivalent in size to 21 football pitches, it was the largest facility of its kind in Vietnam. The leased area has since been reduced to six hectares, however, while the operational site reportedly covers only one-third of the area originally planned. Reuters said that only a handful of employees and several trucks were present when its reporters visited the hub late last month.

The abolition of the US de minimis exemption has been cited as a key factor behind the move. The de minimis provision exempted imported goods valued at $800 or less from tariffs. Shein used the provision to ship low-cost apparel manufactured at Chinese factories directly to US consumers in individual parcels, securing a decisive price advantage. The Donald Trump administration eliminated the exemption for low-value parcels originating in China and Hong Kong in May last year, subjecting Shein’s products to tariffs and customs clearance costs. This rendered its previous ultra-low-cost direct-shipping model increasingly untenable. The exemption was subsequently abolished for shipments from all countries in July of the same year, further weakening the incentive to operate overseas logistics and manufacturing bases.

US Tariff Gap Between China and Vietnam Narrows

Changes in US tariff policy also appear to have influenced Shein’s decision. The US government imposed an additional 10% tariff on Chinese imports in February last year and sharply raised tariffs on China again in April. Additional tariff rates on some Chinese products surged as high as 145% at the time. Against this backdrop, Shein selected Vietnam as an alternative manufacturing base to reduce its reliance on Chinese production and circumvent US tariffs on Chinese goods. According to Reuters, Shein even encouraged major Chinese suppliers to establish production facilities in Vietnam. The company judged that exporting goods manufactured in Vietnam would offer greater protection from tariff risks than shipping finished Chinese products directly to the United States.

Subsequent shifts in US trade policy substantially diluted that advantage. Some of the steep tariffs imposed on Chinese goods were eased, while Vietnamese products were also subjected to additional US tariffs, sharply narrowing the tariff-cost differential between the two countries. “If the tariff differential is insufficient to offset the cost of relocating production, Shein has little incentive to transfer its production lines to Vietnam,” one market expert said. “Capital expenditure on facilities, higher logistics costs and diminished supply chain efficiency could instead further erode profitability.”

Setbacks in Building a Local Supply Chain

Vietnam’s domestic manufacturing base also proved less robust than China’s. According to sources at Shein’s Chinese suppliers interviewed by Reuters, the company struggled to secure the low-wage workforce willing to work long hours that its operations required in Vietnam. The labor constraint threatens the viability of Shein’s business model. The company initially manufactures millions of clothing designs in small batches, monitors the responses of hundreds of millions of shoppers in real time and rapidly increases production of popular items. This operating model requires skilled workers capable of adjusting output daily and a dense network of partner companies.

Many apparel suppliers that relocated production to Vietnam to serve Shein have already returned to China after struggling to secure adequate labor and profitability. A factory manager in Guangzhou’s Panyu district, where numerous Shein suppliers are concentrated, told Reuters that the company had “realized the efficiency of the Vietnamese factory was too low and that production there was inferior to manufacturing in China.” An industry source said, “China has a system centered on Panyu, where thousands of fabric, cutting, sewing and packaging factories are clustered and can respond immediately to orders. Recreating an ecosystem built over many years would have been difficult in Vietnam within a short period.”

Table 1. Risks Facing Shein in the Vietnamese Market

Vietnamese Government Confronts Shein

Regulatory pressure from the Vietnamese government has also increased Shein’s administrative and legal burden. Shein clashed with regulators in 2022 after selling products to Vietnamese consumers without completing the required local e-commerce registration. Vietnam’s Ministry of Industry and Trade publicly stated in October 2024 that overseas platforms including Shein and Temu were operating without formal registration and warned consumers against transacting with platforms whose registration status had not been verified. In November of that year, the ministry ordered Shein to complete its business registration by the end of the month and warned that noncompliance could result in the blocking of its app and internet domain. Shein failed to complete the relevant procedures by the deadline and suspended sales in Vietnam on December 5, 2024. A notice posted on Shein’s website at the time stated that its services were unavailable in Vietnam and that the company was proceeding with registration through the Ministry of Industry and Trade.

The Vietnamese government subsequently intensified enforcement by placing the logistics hubs of unregistered foreign e-commerce companies under regulatory surveillance and inspection. Last year, it enacted a standalone e-commerce law that tightened regulation of overseas operators. The legislation requires foreign e-commerce platforms to establish a Vietnamese entity or appoint an official representative depending on their business model and sets out specific safeguards governing seller information, consumer protection and transaction-record retention. The law took effect on the first of last month. Vietnam has also designated cross-border e-commerce as a priority area for supervision this year, launching comprehensive oversight based on taxation, product administration, counterfeit enforcement and transaction data.

Earnings Alarm Ahead of IPO

Shein’s financial performance continues to deteriorate amid accumulating risks across global markets. Documents submitted to the Hong Kong Stock Exchange show that the company posted a net loss of $99 million in the first quarter of this year. Net profit fell from $3.4 billion in 2024 to $2 billion last year, while the net profit margin declined from 8.7% to 4.9% over the same period. The downturn represents a severe headwind for Shein ahead of its IPO. According to Reuters, the China Securities Regulatory Commission (CSRC) approved Shein’s Hong Kong listing application last month. After repeated failures to list in New York and London, Shein is pursuing a Hong Kong IPO following nearly four years of attempts. The listing is scheduled for August 19.

Shein’s valuation has plunged from its previous heights. The Financial Times reported on August 10 that the company’s advisers were offering prospective investors the opportunity to invest at a valuation below $30 billion. That figure amounts to less than 30% of the $100 billion valuation Shein secured during its Series D funding round in 2022. Another source said investors were valuing the company in the mid-to-high $20 billion range. Slowing growth and an increasingly stringent trade and regulatory environment have dampened investor sentiment.