Key facts
- Shein is significantly scaling back its operations in Vietnam, reducing its leased warehouse space and laying off staff.
- The move is attributed to changes in U.S. trade policies, including the end of de minimis duty exemptions and increased tariffs on Chinese goods.
- Shein's business model relies heavily on its Chinese supplier network for speed, flexibility, and small production runs.
- The company is reinvesting in its manufacturing base in southern China, pledging over 10 billion yuan for a smart supply-chain system.
- Shein's U.S. revenue declined 14% in the first quarter following the removal of duty-free exemptions for small parcels.
Chinese ultra-fast fashion retailer Shein is drastically scaling back its operations in Vietnam, a year after establishing a large export base, according to six people familiar with its operations. The company's grand experiment to make Vietnam a major export hub has faltered due to significant shifts in U.S. trade policies and the inherent advantages of its Chinese manufacturing base.
When Shein formulated its plans in late 2024, it anticipated the abolition of U.S. exemptions for duties on small parcels from China and a potential trade war under a second Trump presidency. These fears were realized, with U.S. tariffs on many Chinese goods soaring. Shein encouraged its largest Chinese suppliers to set up manufacturing in Vietnam, but the initiative has not gone as planned.
The leased warehouse facilities near Ho Chi Minh City, initially covering 15 hectares, have been reduced to 6 hectares, with mass layoffs occurring since April. During a visit in late July, the site showed minimal activity compared to bustling nearby warehouses.
The primary blow to Shein's Vietnam strategy was the end of the U.S. de minimis duty-free exemption for shipments under $800, ordered by Donald Trump in July 2025 and effective a month later. While Vietnamese apparel still faces lower tariffs than Chinese clothing, the advantage has narrowed. For instance, a knit polyester dress incurs a 16% duty from both countries, but Chinese items face additional Section 301 tariffs, potentially raising the effective rate to around 33.5%.
Furthermore, both China and Vietnam were recently hit with new U.S. tariffs of 12.5% for allegedly failing to prevent imports of goods made with forced labor, further undermining Vietnam's appeal. Beyond tariffs, finding Vietnamese workers willing to work long hours for low wages has proven difficult for Shein's Chinese suppliers.
Shein's competitive edge hinges on its vast network of Chinese suppliers, capable of producing millions of styles in small batches with minimal margins and fulfilling orders within days. Sheng Lu, a professor of fashion and apparel studies at the University of Delaware, noted that sourcing diversification beyond China has practical limits for companies like Shein that depend on speed and flexibility. Many suppliers who relocated to Vietnam have returned, finding manufacturing in China more viable due to lower efficiency in Vietnam, despite smaller tariffs.
Guangzhou authorities also expressed displeasure with Shein's subsidies for Chinese manufacturers opening plants in Vietnam, warning the company against significantly shifting orders away from the region. In response, Shein is further investing in Guangzhou and Guangdong province, with CEO Sky Xu pledging over 10 billion yuan for a smart supply-chain system.
However, as Shein recommits to China, some domestic suppliers are not reciprocating with increased orders due to slowing demand. Shein's U.S. revenue dropped 14% in the first quarter following the end of the de minimis exemption. Some suppliers are now supplementing their income through platforms like Temu or Amazon, as Shein is perceived as less attractive than before. Other factories have dropped Shein due to its thin profit margins and small order volumes.