Meta Faces Ad Revenue Drop as U.S. Trade Policies Hit Chinese Retailers Temu and Shein

Meta Platforms reports a decline in advertising revenue from Chinese e-commerce companies Temu and Shein due to U.S. trade restrictions and the closure of the de minimis tariff exemption. The changes, part of former President Trump's trade policies, include a 145% tariff on Chinese imports and ending duty-free treatment for low-value shipments. This has led to a significant reduction in ad spending by Asia-based exporters, impacting Meta's revenue. The de minimis exemption closure, effective May 2, has forced retailers to restructure and raise prices, further affecting digital ad spending.

Chinese Retailers Pull Back Amid Tariff Escalation

Meta’s Chief Financial Officer Susan Li confirmed during the company’s first-quarter earnings call that “Asia-based e-commerce exporters” have reduced their ad spending on Facebook and Instagram. Li attributed the decline to preparations for the end of the de minimis trade exemption, which officially closes on May 2 following an executive order signed by former President Donald Trump in early April.

“A portion of that spend has been redirected to other markets, but overall spend for those advertisers is below the levels prior to April,” Li said, noting that the impact is already visible in Meta’s advertising performance.

Sensor Tower data shows that daily average U.S. ad spend by Temu and Shein on platforms including Facebook, Instagram, Snap, and Pinterest has dropped by more than 50% in the second quarter to date. This sharp decline coincides with the implementation of new tariffs and the closure of the de minimis loophole, which previously allowed goods valued under $800 to enter the U.S. duty-free.

Meta’s Exposure to Chinese Advertisers

Chinese retailers like Temu and Shein have become significant contributors to Meta’s advertising revenue. Analysts estimate that China-based advertisers account for more than 10% of Meta’s ad business. In 2024, Meta’s China-related ad sales were valued at approximately $18.35 billion, according to industry estimates.

Jefferies analyst Brent Thill noted in a recent investor note that Meta’s stock performance has been weighed down by its “greater exposure to advertising (no cloud business for Meta) and China-based advertisers (>10% exposure for Meta) who have reportedly pulled back on ad spend.”

Despite Meta’s strong Q1 performance—reporting $41.39 billion in advertising revenue, a 16% year-over-year increase—the company’s Asia-Pacific ad sales came in at $8.22 billion, falling short of Wall Street’s $8.42 billion projection. The shortfall underscores the early effects of the trade policy shift on Meta’s regional performance.

The End of the De Minimis Exemption

The de minimis exemption, which allowed low-value imports under $800 to bypass tariffs and customs inspections, has been a cornerstone of the business model for fast-fashion and discount retailers like Shein and Temu. The average order value for these platforms—$25 for Temu and $100 per month for Shein shoppers—meant that most shipments qualified for duty-free entry.

The Trump administration’s decision to eliminate this exemption is expected to significantly increase costs for these retailers. According to Snap CFO Derek Andersen, the change has already impacted advertiser behavior. “Spending for some advertisers was impacted by the changes to the de minimis exemption,” Andersen said, noting that Snap also experienced a slowdown in ad spending in the second quarter.

The closure of the loophole is part of a broader trade strategy that includes a 145% tariff on Chinese goods. These measures have already led to a 65% drop in Chinese e-commerce exports to the U.S. in the first quarter of 2025, according to official Chinese data. In contrast, exports to the European Union rose by 28% during the same period, suggesting a strategic pivot by Chinese retailers toward less restrictive markets.

Retailers Respond with Restructuring and Price Hikes

In response to the new trade barriers, Shein is reportedly considering a restructuring of its U.S. operations to mitigate the impact of tariffs. Both Shein and Temu have also announced “price adjustments” and are expected to scale back free or discounted shipping options for American consumers.

The platforms have already raised prices significantly—by as much as 377% for Shein and 150% for Temu—according to data cited by Snap. These increases are likely to dampen consumer demand and further reduce the need for aggressive digital advertising campaigns in the U.S. market.

Broader Implications for Meta and the Digital Ad Market

While Meta has issued optimistic guidance for the second quarter—projecting revenue between $42.5 billion and $45.5 billion—company executives acknowledged the uncertainty surrounding the rest of the year. “It’s very early, hard to know how things will play out over the quarter, and certainly, harder to know that for the rest of the year,” Li said.

Meta’s ad-dependent business model makes it particularly vulnerable to shifts in global trade policy. Unlike competitors such as Amazon or Google, Meta lacks a diversified revenue stream from cloud services or physical goods. As a result, any sustained reduction in ad budgets from major international clients could have a disproportionate impact on the company’s financial performance.

The company is also facing rising costs, with capital expenditures for 2025 now projected between $64 billion and $72 billion, up from a previous range of $60 billion to $65 billion. These increases are driven by investments in artificial intelligence infrastructure and higher hardware costs, some of which are linked to supply chain disruptions caused by the trade war.

References

• Meta lifts revenue 16% - AdNews
• Meta beats Q1 earnings estimates, offers strong Q2 outlook despite fears of tariff-influenced ad slowdown
• Chinese e-commerce exports to US plummet by 65% in face of tariffs
• Trump tariffs live updates: China eases tariffs on select US goods as Trump says Beijing will 'eat’ the costs
• Your Shein and Temu purchases are about to get more expensive
• Snap shares slump 15% as scrapped forecast stokes ad slowdown fears before Meta earnings
• Snap stock craters after it reveals an $800 loophole could endanger more than $1 billion in ad revenue
• Meta says China retailers are reducing digital ad spend
• Snap shares drop as scrapped forecast stokes ad slowdown fears before Meta earnings