The insight: Temu’s attempts to tariff-proof its business are running into opposition from regulators and sellers alike.

• The company has been accused of failing to protect EU users from illegal products—a potential breach of the EU’s product safety rules and a significant challenge to its plan of relying on European sales to make up for US losses.
• Efforts to woo US sellers to its marketplace are also running aground as companies and merchants refuse to sell products on Temu for less than what they retail for on Amazon, per the Financial Times.

Shaky foundations: Temu’s operating model is increasingly under threat in an environment where trade policies favor protectionism over globalization. Rather than looking for a more sustainable expansion strategy, Temu is sticking to its familiar playbook of blitzing target markets with ads and undercutting local competitors with cheap products—tactics which are, unsurprisingly, prodding governments into taking action.

• While the EU’s preliminary investigation focused on the sale of unsafe products like baby toys and small electronics, the retailer is also facing scrutiny into its “addictive design features, the transparency of its recommendation systems, and its access to data for researchers,” among other potential transgressions, according to a statement from the European Commission.
• Should Temu be found in violation of those rules, it could face a fine of up to 6% of its global annual revenues.

Falling afoul of Amazon: Temu’s strategy for US survival is also facing serious obstacles, not only from tariffs and the de minimis rollback, but also from Amazon’s considerable market power.

• The company’s attempts to lure US brands with lower fees and incentives are falling on deaf ears, in large part due to Amazon’s ability to either push merchants out of the coveted “buy box” or simply lower prices to match Temu—both of which would be catastrophic for sellers’ businesses.
• Given Amazon’s grip on ecommerce and Temu’s waning US influence, it’s no surprise that sellers are choosing to stay on the former’s good side.