Memo: China’s Influence on U.S. eCom Grows

As covered in the first in this series by Newsweek, the size and scope of China’s largest eCommerce exports are astounding. Shein is currently valued at $66 billion. Temu, whose parent company also owns Pinduoduo, is targeting $16 billion in 2023 gross sales, up from a previous $11 billion estimate. These companies are consumer darlings, but they’re far from the only rising platforms with ties to the Chinese Communist Party: TikTok, Lemon8, CapCut, TurboVPM, WeChat and SHAREit are each global players. According to a recent report by Quartz:

China’s rapid rise in the eCommerce space is part of a roadmap to dominate global markets, an agenda that worries US authorities. Cargo hubs and warehouses are vital to the success of fast goods delivery, but they come with heightened risks of being run with sophisticated technology serving as a trojan horse for spying operations.

At the core of the differences between the United States and China is how the nation’s economies (and by extension – governments) determine whether businesses will be allowed to proceed undeterred. For China, that answer tends to be no. For the United States, well, we just love cheap goods (Temu, Shein) and even cheaper entertainment (TikTok).

A law that allows low-price packages to enter the U.S. duty-free and with little customs scrutiny has enabled the breakneck growth of two e-commerce companies with roots in China: Shein and Temu. (WSJ)

China’s direct-to-consumer business will one day rival B2B sales to American retailers. To understand the impact of the March 2018 de minimis decision, consider that direct-to-consumer companies were not only excluded from tariffs – they were actually incentivized to sell to Americans. Latin for “about minimal things”, de minimis has been a sly loophole in the import trade laws, allowing packages valued under $800 to bypass the usual scrutiny, including import duties, taxes, or fees. This threshold, critics argue, has been adroitly manipulated by foreign eCommerce companies to gain an unfair economic advantage. The exemption, originally designed for American tourists, has led to over 1 billion packages entering the US in the fiscal year ending in September 2023, with Shein and Temu playing a significant role.

With new bills, Congress aims to checkmate such practices, targeting countries deemed as “non-market economies,” such as China and Russia. But there still exists an $800 exemption that allows DTC companies like Shein, Temu, Alibaba, and TikTok to ship here with minimal taxation on inventory.

In a world increasingly dominated by these platforms and more established eCommerce giants like Amazon and Alibaba, China’s rise as a global retail powerhouse has reshaped the industry landscape. Shein, Temu, and TikTok have captivated consumers worldwide, offering a plethora of affordable and trendy products buoyed by these de minimis exclusions. However, beneath the surface of bargain shopping lies a complex web of data collection and security threats that demand immediate attention. Building on previous insights and recent developments in the national security landscape, this research delves deeper into the multifaceted nature of this threat, exploring how it extends beyond commerce into the realms of national security and economic stability.

The Expansion of Chinese eCommerce

The explosive growth of Shein, Temu, and TikTok within the eCommerce sphere has left some American retailers struggling to keep pace. These Chinese-based platforms, with their user-friendly interfaces and lowest prices, have attracted tens of millions of American consumers. Capitalizing on the de minimis exemption, these platforms have grown exponentially.

This situation underscores the critical implications of America’s dependence on Chinese eCommerce platforms. My earlier report highlighted the economic impact of this reliance and the alarming access to first-party data that it affords China. The American irresistibility of bargain prices on desirable products further enhanced the wealth of information China possesses about American consumers. It’s essential to acknowledge that this threat extends beyond the economic realm, touching upon sensitive national security aspects. For the CCP, there is no line between the economic and the governmental – a reality that many Americans fail to comprehend. I use the term “governmental” as a catch all for intelligence, military, party leadership, and legislation.

The National Security Conundrum

It’s been noted in my initial writings on the matter that China’s acquisition of extensive first-party data through eCommerce platforms poses a significant national security concern. This data, encompassing information on consumers’ demographics, preferences, and even their home layouts, have far-reaching implications. Consider the recent lawsuits between Temu and Shein in United States courts. The suits show that both organizations are willing to fight over the growth ahead.

Expanding on the national security implications: The recent 60 Minutes segment featuring leaders of the Five Eyes intelligence alliance serves as a stark reminder of the perils posed by China’s ability to execute espionage at scale, buoyed by its eCommerce advancements in the United States.

China’s global espionage campaign is a growing and unprecedented threat to national security. Intelligence leaders, including the FBI director and those from the Five Eyes alliance, have issued warnings about the alarming extent of this espionage threat.

The combination of China’s global espionage campaign, Russia’s invasion of Ukraine, and the Middle East crisis has raised doubts about the intelligence community’s ability to effectively address these challenges and confront what seems to be an insignificant eCommerce problem. Driven by China’s autocratic government and advanced technology, that “insignificant problem” undermines the rule of law and poses a major threat not only to the United States but also to its allies. The situation calls for increased vigilance and coordinated efforts to counter this multifaceted threat.

They’ve yet to address the pressing need to address both the economic and national security aspects of China’s eCommerce threats.

Addressing the Dependence Dilemma

To counter this threat effectively, it is crucial to recognize that America’s reliance on Chinese eCommerce is not merely a matter of convenience but also a symptom of deeper economic issues. Factors such as inflation and economic instability have driven consumers toward these platforms in search of affordability. To mitigate this threat, it is imperative to improve the American economy, halt inflation, and provide affordable alternatives capable of competing with Chinese e-commerce giants.

Citing my earlier essay: As outlined, the remedy to this problem extends beyond immediate security concerns. It necessitates economic reforms, bolstering domestic industries, and fostering transparency regarding data collection and security risks. A stronger economy with more competitive offerings will reduce dependence on Chinese platforms, thereby mitigating national security concerns. This basic logic seems to go ignored by American political and economic management officials. It’s a three-pronged approach to reducing dependence on this class of foreign bargain marketplaces that trade cheap prices with deeper reach.

  • Improve transparency
  • Highlight privacy concerns
  • Mitigate economic dependence by improving economy

Improve transparency: One of the most significant challenges in countering the threat posed by Chinese eCommerce is raising awareness and promoting transparency. The recent 60 Minutes segment featuring intelligence leaders emphasizes the gravity of the situation. It is incumbent upon authorities to educate the public about the risks associated with unchecked data collection. Citizens must understand that this isn’t merely an issue of individual privacy but a critical concern for national security. This connection has yet to be publicly accepted despite the first essay being featured in Newsweek and then expanded upon by the publication’s internal staff.

Understand China’s first-party data strategy and privacy disruption: China’s mastery of collecting and mining first-party data is central to its commerce and technology industries. This data collection, predating similar Western efforts, provides Chinese companies with invaluable insights into consumer behavior. It allows them to refine algorithms and tailor their offerings accordingly. This data-driven approach has raised legitimate concerns about privacy and data security, as the massive volumes of data collected could potentially be misused or abused. Reports have suggested that data collected by Chinese commerce companies has been used for discriminatory purposes and surveillance. The inseparable relationship between some Chinese tech companies and the government has intensified concerns about data’s potential use in matters of national security. Chinese officials do this well. China’s Ministry of State Security made the following statement in September, noting “a decade-long cyber espionage campaign against Huawei servers.”:

It has long been an open secret that the United States has long relied on its technological advantages to conduct large-scale eavesdropping on countries around the world, including its allies, and carried out cyber theft activities.

Mitigate economic dependence: To counter the multifaceted threat posed by Chinese eCommerce effectively, the United States must adopt a holistic approach. The tentacles of Shein, Temu, and TikTok’s influence on America will only grow. According to Jing Daily’s reports: “With 150 million American users, the [TikTok] app is well-loved and deeply embedded in people’s daily lives — and could soon be integrated into their shopping routines as well.” Cheap goods, cheaper entertainment. American officials need to prioritize the enacting of economic reforms, the strengthening of domestic industries, and fostering greater transparency regarding data collection practices. A robust economy with competitive alternatives will reduce dependence on Chinese platforms, thereby mitigating national security concerns.

US customs data shows that more than 10% of Chinese imports by value are now sent directly to customers, up from under 1% a decade ago. (DW)

China’s eCommerce giants have swiftly expanded their influence, not only reshaping consumer behavior but also posing significant threats to national security. The remedy to this problem lies a proactive approach to addressing the economic and legislative influences that accelerated the 1% to 10% growth over ten years. This didn’t happen in a vacuum. The lessons from the past should inform our path forward in safeguarding our nation’s interests. If left up to the American consumer’s own devices, he or she will choose a low price or free entertainment over the understanding of its greater impact. We do the same with respect to our consumption of microplastics, unhealthy foods, and other lifestyle choices revolving around overconsumption.

Capitalism is truly American. And while it has its sincere benefits, it can be used against us. That’s the best way to explain the impact that our consumer decisions are being used by others that may not have the long-term best interests of the American consumer at heart.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams

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