Two Chinese companies, Shein and Temu, are undercutting retailers in every country

The 'parcel' economy, dominated by two companies Shein and Temu, is exploding

In 1887, the British parliament passed the Merchandise Marks Act to protect British industry from knock-off products which purported to be made in the UK but were in fact made cheaper – and in many cases better – in Germany.

The British were, understandably, worried about the emergence of an industrial superpower in the guise of the newly united Germany. In 1870, Britain, the “workshop of the world”, was the world’s largest economy and unmatched military hegemon, displaying unsurpassed industrial and innovative capacity. The British Empire was at its zenith.

At the time of unification in 1871, German goods were poorly regarded, seen as poor quality copies of British originals. German industrialists visited England, allegedly as tourists, but in reality, were on espionage missions.

This industrial spying contributed to a rise in the quality of German manufacturing over the 1870s, culminating in the British passing the Merchandise Marks Act to protect British manufacturing. But that didn’t stop the Germans.

Between 1895 and 1907, the number of workers deployed in German machine building doubled from 500,000 to one million, decreasing emigration from Germany by 84.6 per cent between the 1880s and mid 1890s. By 1914, Germany was producing twice the amount of steel as Britain and more Nobel Prize-winning scientists than Britain and the United States combined.

When I look at the persistent rise of China in the early 21st century, the explosive arrival of Germany on the global economic stage in the early 20th century comes to mind. Chinese exports to the EU increased by nearly 28 per cent in January and February of this year alone. Chinese exporters shut out of the United States by Trump’s tariffs have pivoted to Europe. The US is the only major economy to experience a decline in imports from China, down 11 per cent last year. Those goods have ended up in Europe, adding to an already huge trade deficit with China which widened to €359.3 billion in 2025 – a 20 per cent increase from €304.5 billion in 2024. If we go back a bit, we can see the pace of Chinese export dominance into the EU. Twenty years ago, in 2001, the EU’s trade deficit with China was just €39.6 billion, rising to €168 billion by 2010. It is now double that.

Probably the most conspicuous evidence of this is the arrival of Chinese cars on European roads. Last year, Europe imported €12.7 billion worth of Chinese cars. This represents a phenomenal growth, up 1,591 per cent over just a five-year period since 2019. There are almost 17 times more Chinese cars on European roads than there were five years ago.

Ten years ago no one had really heard of Chinese cars. Today, China is the single largest source of EU car imports, accounting for 16.7 per cent of the total and beating traditional motor exporters like Japan (16.1 per cent), the UK (14.5 per cent) and the US (11 per cent). With the trend towards an expanded electric car fleet, which China excels at producing cheaply and efficiently because of their lead in battery technology, the writing is surely on the wall for Germany, by far Europe’s largest car producer. Germany isn’t just Europe’s largest car maker but it is also the dynamo at the heart of the Continent, sucking in inputs from Austria, Poland, Czechia and Switzerland. The knock on effects of a stumbling Germany will be felt far from the federal republic.

One of the fastest growth areas for Chinese products in Europe is via small scale ecommerce. This sector, which we might call the “parcel” economy, dominated by two companies Shein and Temu, is exploding. They are undercutting retailers in every country, leading to closures on high streets. How can a traditional retailer who has to pay European rents, rates, wages and utilities just to open the door, compete with these Chinese versions of Amazon? They can’t. As a result, high street shopping is the preserve of the very rich who visit high-end destination shops or the very poor who can be seen in discount shops at the other end of the economic scale.

One fascinating result of the parcel economy is the emergence of the “shed” economy in Europe. As China’s trade offensive into Europe has intensified, the sheer demand from the likes of Temu and Shein has overwhelmed their logistics capacity. The companies don’t have enough warehouse space to store all the stuff they are shipping. An ingenious solution has emerged. The Chinese diaspora across Europe is quietly turning their homes into a makeshift warehousing and logistics network, processing, picking, packing, labelling and distributing parcels for around €1.16 per package.

The Wall Street Journal WSJ, South China Morning Post reported recently that Chinese people who convert their homes and sheds into fulfilment operations can earn up to €4,500 a month. On a single day in June 2025, more than 300 posts looking for “family warehouses” appeared on Red Note, a Chinese social media platform, alone. When a nation is harnessing all its resources, galvanising its own diaspora as a logistics hub in unconventional ways, how can European companies compete?

This is a big question for all of us. If China can make almost everything cheaper and increasingly better than the rest of us, what, if anything, does China want? What can we sell them? Trade is meant to be a two-way street – you make stuff in your country that we can buy and vice versa. Europeans need jobs and we need high-paying, high skilled jobs in manufacturing which are the heart of the industrial economy. If the Chinese juggernaut continues to make things better than Europeans, what will there be for Europeans to make?

Even in the 1840s and 1850s when Britain was at the height of its industrial power, merchants from the East India Company found that the Chinese didn’t want any manufactured goods made in Britain. The court in Peking and the Chinese manufacturing class looked down their noses at what they saw as shoddy European goods. And so the British, unable to sell them industrial goods, sold them opium made in British India. Thus began the 19th-century “opium wars” when the only product Europeans could sell to China was narcotics.

By the 2040s, 200 years after the opium wars, what will China want to buy from Europe? If the answer is nothing, then European protection from China in the form of tariffs – the Trump playbook – may be on the cards.