Temu’s U.S. Meltdown: Amazon, Policy Shifts, and a $1.4B Ad Collapse

Temu arrived in the U.S. like a bargain-hunting fever dream, offering $2 phone cases, $5 kitchen gadgets, and a promise of endless cheap finds shipped straight to your door. For a moment, it seemed like the Chinese-owned ecommerce platform had cracked the code to the American market.

But in just a short time, Temu’s rapid rise has given way to a brutal reality check involving trade policy shifts, Amazon’s iron grip on ecommerce, and a billion-dollar advertising implosion.

The Policy Shift That Shattered Temu’s Business Model

For Temu, the first major blow came not from a competitor but from Washington D.C.

The Trump administration’s elimination of the de minimis exemption, a rule allowing low-value imports to enter the U.S. duty-free, was devastating. Before, Temu could ship goods cheaply from China without import taxes. After the change, every $3 Bluetooth speaker and $5 kitchen gadget had to pay import duties.

• Before policy change: Temu could undercut domestic sellers by avoiding tariffs.
  
  

• After policy change: Import duties erased profit margins overnight.

  
  

The platform tried to pivot to U.S.-based suppliers, but the shift was like swapping a Ferrari for a shopping cart mid-race.

Amazon’s Hidden Power Over Competitors

If trade policy was the first punch, Amazon delivered the knockout.

Temu discovered that competing with Amazon in the U.S. is not just difficult, it is structurally impossible for many sellers. Merchants revealed they could not offer lower prices on Temu without facing Amazon’s retaliation.

Amazon’s enforcement tactics reportedly include:

• Removing products from the coveted “Buy Box”
  
  

• Slashing listed prices and charging sellers the difference
  
  

• Making listings disappear entirely
  
  

This creates what some call digital feudalism, where sellers are not truly independent merchants but vassals bound to Amazon’s algorithmic rule. Temu could control pricing on its own platform, but not without risking its sellers’ livelihoods.

The $1.4 Billion Advertising Freeze

Temu’s aggressive entry into the U.S. market was fueled by massive advertising, with $1.4 billion spent on Meta ads in a single year. But as competitive pressure and pricing restrictions mounted, the company pulled the plug on advertising entirely.

The results were swift and brutal:

• 54% drop in monthly active users between March and July
  
  

• Loss of momentum in brand awareness and customer acquisition
  
  

• Shrinking market share in the face of Amazon’s continued dominance
  
  

Temu’s dependence on paid social media exposure meant that once the ad spend stopped, so did its growth.

The Last-Ditch Pivot: Becoming the “TJ Maxx of the Internet”

Faced with a pricing trap and dwindling user base, Temu’s survival strategy now centers on off-price inventory such as returns, overstock, and surplus goods.

Rather than directly battling Amazon’s core catalog, Temu aims to create a digital discount bin experience. It is not glamorous, but it could carve out a niche similar to bargain retailers like TJ Maxx or Ross.

The Big Lesson for Ecommerce Entrepreneurs

Temu’s rise and fall is not just about one company, it is a cautionary tale about platform dependence in modern ecommerce.

• Explosive growth without platform independence is unsustainable
  
  

• Competing against a platform that can dictate prices is an uphill battle
  
  

• Reliance on paid advertising without brand loyalty is high-risk
  
  

Ultimately, Temu’s American experiment raises a bigger question: Can any ecommerce business succeed in the U.S. without Amazon’s approval?

For now, the answer looks uncomfortably close to “probably not.”