Win on Value, or Don’t Win at All
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The Great Consumer Substitution
The 2025 tariffs have led to significant price increases across consumer goods. The Yale Budget Lab estimates an average short-term price increase of 3.0%, equating to a $4,900 loss in average purchasing power per household (in 2024 dollars). Even after consumers adjust their spending habits through substitution, prices remain 1.6% higher, translating to a $2,600 loss per household.
In Econ 101 terms, this sustained price pressure triggers a substitution effect: faced with higher prices, consumers will shift to lower-cost alternatives where possible. But in an economy this complex, those substitutes aren’t always domestic or intended — they’re simply cheaper.
For startups, that delta — the $2,300 in consumer substitution — represents opportunity. Consumers are primed to switch and are actively deciding between ill-equipped incumbents and challengers raising the bar on value through cost-saving infrastructure that captures demand being reallocated.
Trade Policy Meets Trade-Down Behavior
We’re seeing value-seeking behavior emerge in ways that feel familiar — and increasingly predictable. As prices rise, consumers are falling back on trade-down behavior, alternative sourcing, and renewed interest in the lowest-cost channels available.
While reindustrialization remains a goal, in the near term, the reality is more fluid. Tariffs and price shocks are amplifying price sensitivity, not dampening it. Without breakthroughs in automation, robotics, or cost-reducing infrastructure, consumers are simply returning to the globalized, low-cost systems they already know. Value doesn’t disappear — it just reroutes.
That rerouting is already visible across platforms — and the underlying signals are remarkably consistent. Consumers are leaning harder into affordability, reactivating old channels and accelerating the adoption of new ones. Demand for affordability is spiking, and discount commerce platforms are experiencing surges in engagement. Many of these platforms have been raising prices for some time while continuing to scale rapidly — and they still undercut many domestic alternatives by a wide margin.
Demand for low-cost entry points is rising post-tariffs. Amazon’s sub-$20 storefront, Amazon Haul, saw a 2.3x spike in traffic immediately after tariffs hit, according to data from Similarweb. It underscores the momentum behind consumer interest in low-cost alternatives — a signal that demand for the lowest-cost products hasn’t diminished, and that demand is relatively fluid in how and where it expresses itself.
Chinese commerce platforms in the U.S. are seeing a sharp rise in engagement. Apps like DHgate, Alibaba, and Taobao surged up the U.S. app store rankings in April, according to data from Sensor Tower — DHgate jumped 100+ spots on Google Play while Taobao saw similar growth on iOS. While the long-term outlook will be shaped by geopolitical complexity, in the short term, these platforms are still acquiring users at a rapid clip and that should serve as a lesson for everyone, regardless of what country they’re sourcing from. That growth is being fueled in-part by viral discovery, especially recent factory TikToks that highlight factories and the overlapping manufacturers producing both luxury and mass-market goods. These videos are helping Chinese manufacturers bypass traditional retail infrastructure and speak directly to a U.S. consumer base hungry for affordability.
Discount platforms have pricing headroom in uncompetitive categories. Even with tariffs, many of the products on platforms like Temu remain cheaper than U.S. equivalents. One example Similarweb shared recently was that "compatibles," including items like power tool batteries or toothbrush heads, are 3–9x cheaper than branded versions. Even extreme tariffs, may not fundamentally impact demand for goods with this much pricing headroom.
There's strong precedent for discount platforms raising prices without losing demand. Shein has raised prices by 81% on U.S. women’s dresses since 2022 and still retains its customer base. That pricing flexibility is a luxury most U.S. brands don’t have. Discount platforms tend to operate on thin margins, partly because of competition in regional international markets. But when those markets move as a block, their collective pricing power, and ceiling, can be surprisingly high. The tipping point for losing demand varies by category — but many remain so uncompetitive that consumers have no real alternatives. And again, even if China winds up not being the country of origin, the principal drivers remain the same.
The Great Consumer Substitution
Contrary to popular narratives, globalization is far from over — it's just shifting form. While the rules of the game are changing daily, viewing this moment solely through a reindustrialization lens is incomplete. The most immediate opportunity isn’t in reversing global flows, but in meeting consumers where they already are: in the value economy.
This doesn’t mean low-quality — it means high value relative to cost. Affordability is the new baseline. Startups that streamline sourcing, customer distribution and supply chain fulfillment, especially in under-optimized or uncompetitive categories, have real whitespace. The fight for value is today's battle in the long-term war for automation and resiliency.
Longer term, there’s only one way to structurally tip the playing field: through technology and automation. Labor shortages and cost realities mean the U.S. cannot compete on price. But with true automation — robotics, vertically integrated software and AI-native operations — we can unlock economic alpha and set the terms of competition.
At Basis Set, we're investing in both: value as a competitive wedge today, and automation as the engine of transformation tomorrow.