Over the past year, there's been a huge influx of Chinese goods into the European market. One of the biggest companies selling these goods is Xi'an, the company famous for fast fashion at low prices. In November, Xi'an opened its first permanent store in Europe, in a popular department store in Paris. Tell me about what happened when Xi'an opened a store in Paris. Chaos, absolute chaos. That's our colleague Chelsea Delaney. It was chaotic because there were tons of people lining up, eager to shop. And right next to them, angry Parisians who wanted Xi'an out of their city. It was intense. You know, a lot of French retailers and politicians were very upset about it. Some department store workers held a strike outside or held a protest. They went on strike for a day. So even just the announcement that this was coming had caused a huge stir in Paris and in France. The flood of cheap Chinese goods into Europe has been swift. And there is one very specific reason these companies are suddenly so focused there. After the tariffs went into effect into the US, China needed new places to sell all that stuff. It was no longer selling to the US and Europe looked like the perfect place. Welcome to The Journal, our show about money, business and power. I'm Ryan Pinootsen. It's Wednesday, January 7th. Coming up on the show, how Europe replaced the US as China's new favorite customer. For decades, China has been the world's manufacturing floor. In America, it was its biggest customer. They make everything. They make clothes. They make vehicles. They make phones. They make laptops. There's very little in our lives that we interact with that does not have a Chinese component to it. And increasingly, one of the biggest product categories that China makes is known as low-value packages, which is basically anything that's less than a few hundred bucks. I think it's underappreciated how big a part of China's export sector has become these low-value packages. So in 2024 and also 2025, they've exported about a hundred billion of these low-value packages. So it has become really enormous. Companies like Xi'an have sold clothes to Americans for low, low prices. I don't think I've ever had a Xi'an haul this big before. I just got all this stuff for literally zero dollars. And Americans love this stuff. This is like the biggest package I've ever gotten from him before. I ordered a bunch of random things from Xi'an. I honestly don't even remember what I ordered. And it was only like 60 bucks, which is pretty good because I got, I want to say, 20 things. But the Trump administration did two things last year that really rocked the boat for the Chinese e-commerce industry. First, Trump announced he was going to close something called De Minimus. De Minimus is a regulatory loophole that allowed packages under $800 to be exempt from customs duties and certain taxes. It just made it very easy to ship small packages from a place like China into the US because you avoided all of the hassle and the bureaucracy that comes with bigger shipments. So that's what a lot of the Chinese e-commerce companies did. So instead of sending a bulk shipment through it with a container full of a thousand shirts, they'd send a small package through the mail and then they wouldn't have to do all of the customs declarations and pay the taxes. A lot of American companies complain that De Minimus gave foreign manufacturers, companies like Xi'an and Timu, unfair advantages. De Minimus is a big deal. It's a big scam going on against our country. It gets really small businesses and we've ended. We put an end to it. The second thing, of course, was tariffs, which reached such high numbers of China last year that it made it much less profitable for some Chinese companies to do business in the US. The end of De Minimus and the application of high tariffs on China signaled a major obstacle for Chinese companies who thrived by selling low value packages. People thought it would be really bad for Chinese manufacturers. The US is the most important market for a lot of these Chinese exporters and the tariffs were huge. If you think back to April, some of the tariff levels were like 145%, just absolutely devastating for a lot of these companies. How did China's businesses that rely on these kinds of shipments, how did they respond at first? At first, this business kind of ground to a halt in the US. You can see it through the trade data. It's from China of these low value packages just completely collapsed to the US. Some of the companies weren't even shipping to the US because the customs rules and the tariffs were so onerous and they didn't even know if they were going to get stuff in. So, it was very, very chaotic in the initial weeks. Timu and Xi'an also pulled back their advertising in the US significantly, gone with those omnipresent Timu ads that advertised air fryers and door mats and cleaning supplies. But that ad budget wasn't left unspent. Both Timu and Xi'an started spending it elsewhere. One thing you see very clearly through the data is there was a huge surge around the same time of these low value packages coming into Europe. So what was it about Europe, the European market that was attractive to Chinese businesses? Europe is underdeveloped for a lot of Chinese manufacturers. Europe is famously bureaucratic and it's a bit complicated because of all the different countries and so a lot of Chinese e-commerce companies had just kind of focused on the US because it's easier to sell there, it's bigger, it's wealthier and Europe is bureaucratic and difficult to operate in. So I think they hadn't put a ton of resources into it until Trump's trade tensions started to make them question the US. So even though the US closed its doors to Chinese goods or at least made it really difficult to sell here, it sounds like China was able to quickly pivot to the European market. Yeah, I mean I think it's been a huge shock how effectively Chinese companies have found new places to sell all of the stuff they make. Their exports to the US are down about 20% in 2025 but they have more than made up for that by selling it to other places like Southeast Asia and in particular Europe. In a year when China's biggest customer, the US, put up massive tariffs, China exported more to the world than ever before and its trade surplus passed a trillion dollars for the first time. For Chinese e-commerce companies, Europe offered a lot of the same things the US used to, consumers with money to spend and its own de minimis regulation that allowed Chinese companies to import low price goods largely free of customs fees. But accessing the Chinese market meant a huge shift in these companies' supply chains. Chinese businesses have had to prop up a whole new logistics network practically overnight. Along these new trade routes, all kinds of small businesses are cashing in. It's such a vast trade network spanning China to Europe that it's even being described as a new silk road. So these Chinese companies see Europe as a very attractive market to sell their goods. How do they go about actually setting up the logistics to make this happen? Yeah, so I guess the first thing you have to do if you want to sell in Europe on an e-commerce platform is you have to get the goods to Europe. So after the tariffs went into effect, what we saw was a big shift in the air cargo market. So all of these air freighters that carry goods all around the world, they started moving their capacity to Europe. So there has been this huge explosion and air cargo moving from Europe as the US route has kind of declined. And along those routes, we've seen these new cargo carriers popping up. Along the new silk road, there are businesses that have taken advantage of this pivot to Europe. One that's been quite successful is called My Frater. It's based in Tashkent Uzbekistan, and they've just seen this explosion in business, and so they're flying basically almost 9,000 tons of cargo every month from China to Europe. They make a stop in Tashkent and then keep going on. And so we've seen a lot of that. There's just been this huge explosion along that route. And for some of these entrepreneurs, it's been life-changing. This company might go public on the London Stock Exchange. So I think, yeah, for some of these people, this has been a real life-changing opportunity. Chinese like My Frater help get cheap Chinese goods to Europe. Once they actually get there, Xi'en and T-Move built up massive warehousing networks across the continent to stockpile their inventory. But demand for Chinese goods has risen so fast that there's been another kind of warehouse business popping up too. Increasingly we're seeing this trend of what's called family warehousing. So these are really small warehouses often there in people's homes. It could be in a spare room you have. It could be in a dorm room. One woman we spoke to in London actually built a shed in her backyard over the summer to store some of this stuff. She had just been looking on Chinese social media and she was just seeing all of these Chinese factories looking for places to store stuff in Europe. And she was like, what a great business. So she built this shed. And now she spends a couple hours a day like packaging this stuff and sending it off. And some of these people are making really good money. She was saying she can earn somewhere between three and five thousand pounds a month by doing this. And outside of that, you know, she just takes care of her kid. This has all been great for the Chinese e-commerce giants and the businesses along their trade routes. But like with those protests outside Xi'en, there's also been controversy. And there was even a scandal involving a sex doll. That's next. When the tax year ends on the 5th of April, valuable tax allowances may be lost simply because people left things too late. Thankfully, Vanguard is here to help you make well-considered decisions, not rushed ones. Their tax year-end hub is full of clear guidance, helpful tools and timely reminders to help you understand your allowances and give your investments the best chance to grow. The world moves fast. Your workday, even faster, pitching products, drafting reports, analyzing data. Microsoft 365 Co-Pilot is your AI assistant for work, built into Word, Excel, PowerPoint, and other Microsoft 365 apps you use, helping you quickly write, analyze, create, and summarize. So you can cut through clutter and clear a path to your best work. Learn more at Microsoft.com slash M365 Co-Pilot. As Chinese companies started flooding the European market with cheap goods, retailers, who are some of the largest employers there, started to worry. I think Europe also has this history of high quality production and made in Europe. Made in Germany, made in Italy, made in France. Like, that's really important to Europe, like the quality. And I think this has also very much ruffled the feathers of some of the people who think that Europe should be standing for, you know, high quality and sustainability and things like that. And as Sheehan was preparing to open its Paris store, the company was embroiled in another controversy in France. As French consumer Watchdog, they put out the statement they found illegal products on Sheehan's website. And they had found a sex doll that looked like a little girl. Yeah, that's when things really, really escalated. Clutching a teddy bear, this doll is around the same height as a one-year-old girl. It was being sold by the Chinese online retailer Sheehan as a sex doll. The country's consumer Watchdog filed a complaint with the ultra-fast fashion company, prompting the product to be pulled from its site. Court here in Paris today is to consider the French government's request for a three-month suspension here of the website of the Chinese online retailer Sheen. And government officials in France had strong reactions to it. Pretty immediately, France was threatening to ban Sheehan in France, so they were talking about banning their online platform, the website. And then it got even worse because they also found weapons, illegal weapons on the website, so things like brass knuckles, which are illegal in France. And so the Paris prosecutor's office started an investigation. They referred it to the police. Even consumer groups have flagged all kinds of other products sold on Sheehan that are not compliant with EU regulations, pointing to things like choking hazards, toxic metals, and USB chargers that overheated. On the sex doll controversy, Sheehan said that it immediately took down the listings and has banned the sale of all sex dolls on its site. Regarding those other products, Sheehan said they were all sold by third-party vendors and that they've since been removed. It also commissioned its own tests and said it showed a higher rate of compliance for some items. A judge ruled in December that the Sheehan app did not have to be temporarily suspended and could remain online. Governments in Europe have also started reconsidering their own de minimis rules. The EU is already considering closing the loophole, but Chelsea says it's taken on new urgency in recent months. Europe being the rules-based organization that it is was moving very slowly on it, so they were saying, yeah, we're going to close the de minimis in 2028. We need to build this new data hub and we have to get the agreement of all 27 finance ministers, but we must follow the European rules, which will take three years. Then we did see a breakthrough in November. They finally said, we recognize that three years is too long. We have to do something now. They are starting next July going to be levying this three-year-old fee on the packages. Then eventually they will close the de minimis entirely. Will any of these changes to de minimis or these investigations into Sheehan and stuff, is any of that going to change the dynamics that have started to develop in the market where China is just selling tons and tons of stuff to Europeans? It's a good question. That's the question on everyone's mind because this whole network has sprung up around it. A lot of people, airports, cargo operators, stay-at-home moms have made a big bet on it continuing. It seems unlikely that it'll go fully away. The warehouse network these e-commerce companies are building is enormous. It does look like they're making a pretty long-term bet on staying in Europe. Even with the de minimis gone, and even when Europe, the EU, the UK end the de minimis, you don't have the tariffs that the US has. So it still could be more advantageous to sell into Europe because Europe does not currently have tariffs on Chinese e-commerce goods even if you are having to pay a little bit more on custom duties. Sheehan responded to a request for comment by saying it hasn't changed its strategy in Europe. The company said its competitive edge stems from its small batch manufacturing model and not the customs loophole. And there's another challenge that European regulators will face. For many European shoppers, they love all this cheap stuff. Remember that amid all those protesters outside Sheehan were tons of customers waiting to get in. If you look at the sales data, people obviously want this stuff. And when I talk to people who are buying on Chinese e-commerce platforms like Sheehan and Timu and increasingly TikTok shop is getting very popular here as well, they say they're quite measured about it. They know a lot of the stuff is not good quality, but they also say you cannot find anything comparable with that price, with that variety, with that ease anywhere else. So they still love to buy it. I was down a real TikTok rabbit hole on this. And I mean, I saw people doing a haul every single day buying like 100 items every single day and getting these massive packages. So people like it. So all of this kind of kicked off after Trump hit China with these tariffs, which is largely meant to help US manufacturers, but also in some ways designed to weaken China. But it really hasn't. So what does this story say about how China is fared in the trade war? Yeah. I mean, this just goes to show like how adaptable the Chinese economy is. Like, yes, it is selling 20% less to the US now. That is a blow. But Chinese factories move very quickly and they are very entrepreneurial and they have been very good at finding other places to sell stuff. And so, yeah, like this sort of Chinese export machine has not been hurt by the trade war and the way that people thought it would be. It's been very resilient and very adaptable. Yes, the US and China are trading less, but the imbalances that China is running with the rest of the world are just getting even bigger. That's all for today. Wednesday, January 7th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Rebecca Fung. Thanks for listening. See you tomorrow.
