Why a $5 T-Shirt isn’t a Bargain: The Hidden Economics of Shein

 

Person carrying a Shein paper bag

 

Imagine you’re a New Yorker scrolling through TikTok.  An advert pops up: “SALE: 50% OFF.” A $5 T-shirt. Cheaper than your morning coffee. You tap “buy” without hesitation. It feels like a victory.

But what if that price tag is misleading? What if it is hiding a much larger debt being paid by a factory worker in Bangladesh, a polluted river in Southeast Asia, and the climate we all share? 

This is not just a fashion story, it is a textbook case of market failure, where prices fail to reflect the true cost of production. And at the centre of it is Shein, one of the fastest-growing fashion retailers in the United States.

 

The Invisible Price Tag

In a perfect world, prices reflect all costs involved in producing a good: fabric, labour, shipping and environmental clean-up. Economists call this allocative efficiency, in which resources are used to maximize total welfare. 

Shein’s $5 T-shirt does not meet this standard. The price reflects only the private cost such as materials and labour, but the social cost is much higher. It includes;

• Pollution
• Environmental damage
• Poor working conditions 

that are not accounted for in the final price.

This gap between the private cost and social cost is known as a negative externality of production, which is the cost of environmental degradation from pollution, carbon emissions & health issues borne by the society. Due to Shein not bearing the full cost of its actions, it can sell clothing at artificially low prices. The result? Overproduction and overconsumption, leading to deadweight loss, a loss of welfare that society ultimately pays for.

 

One Diagram That Explains Shein’s Business Model

Negative externalities from Shein’s production

 

The standard externality diagram above helps illustrate this clearly. The marginal social cost (MSC) is higher than the marginal private cost (MPC). Shein produces at Q1, where price equals MPC, resulting in too many clothes being produced at a low price (P1). The socially optimal level would be Q* with a higher price P*, where MSC equals marginal benefit.

The shaded triangle represents deadweight loss, meaning welfare is lost due to overproduction. In short, prices fail to signal the true cost, and society pays the difference.

Shein by the Numbers : A Case Study in Overproduction

Shein is not just a theoretical example; it also reflects a real-world market failure. The company releases up to 10,000 new designs per day (Williams, 2022), encouraging constant consumption. In the US, its market share grew from 18% to 50% between 2020 to 2022 (Statista,2023), showing rapid expansion.

This growth comes at a cost. A 2021 Guardian investigation reported workers in Shein’s supply chain working 75-hour weeks under poor conditions (Edwards, 2024). In 2023, a US congressional report raised concerns about forced labour in imports. This highlights how low production costs may be partly achieved by labour exploitation, further widening the gap between private and social costs (Business and Human Rights Centre, 2024).

Landfill full of discarded clothing items

 

Environmentally, Shein’s supply chain emits around 6.3 million tonnes of CO2 annually (Reid, 2025); meanwhile an average customer buys 30 items per year but only keeps them for 7 weeks.

This pattern of fast production and short use leads to significant waste. From an economic perspective, it creates Pareto inefficiency, where resources are allocated so poorly that society could be made better off without making anyone worse off, yet no change occurs.

Making Shein Pay Its True Bill

How can we fix this mess? The solution is to internalize externalities, ensuring firms bear the full social cost of their production.

One approach is a Pigouvian tax, by imposing a carbon tax on Shein’s imports. By increasing production costs, the tax shifts the MPC curve closer to MSC. This reduces output and raises prices toward their true level.

However, this is not straightforward. Measuring the exact external cost is difficult and poorly set taxes may be ineffective or unfair to consumers.

The US government can also use regulation, such as environmental standards or labour laws. These can directly limit harmful practices but are often difficult to enforce, especially across global supply chains.

Can Firms and Consumers Help?

Shein could adopt more sustainable practices, such as using recycled materials or improving labour conditions. In fact, the company launched a “sustainability” collection using recycled materials. However, this accounted for less than 0.1% of its total products, highlighting how limited these efforts are.

Expanding such initiatives would raise costs and potentially reduce competitiveness, giving the firm little incentive to change without external pressure.

Consumers also play a huge role through their demand for cheap, trend-driven clothing that fuels overproduction. If consumers prioritise sustainability and durability, demand will fall, reducing output.

People protesting against Shein in France

 

In 2023, a viral TikTok campaign, #SheinBoycott, gained millions of views and highlighted growing awareness of fast fashion’s impact (Thanh, 2025). While it did not significantly reduce Shein’s dominance, it showed that consumer attitudes are beginning to shift.

However, relying solely on consumer behaviour is unrealistic, especially during cost-of-living pressures. This reinforces the need for government intervention alongside individual action.

 

So, Was That $5 T-Shirt Worth It?

Shein is a clear example of market failure caused by negative externalities in production. Although the $5 T-shirt seems cheap and convenient, that price does not tell the full story. The real cost includes environmental damage and poor working conditions, neither of which is reflected in what consumers pay. As a result, too many clothes are produced and consumed compared to what is socially efficient or needed. 

While government policies like carbon taxes and import bans alongside changes from Shein itself and consumers can help reduce the problem, no single solution is enough on its own to fully fix it. That $5 Shein T-shirt was never a bargain. We were just not seeing the true price.

Next time you see that “50% OFF” flash on your phone, ask yourself: who is really paying?

Reference List

 

1.    Business and Human Rights Centre. (2024). SHEIN, ULTRA-FAST FASHION AND FORCED LABOUR RISKS: KEY ISSUES FOR INVESTORS. [online] Available at: https://media.businesshumanrights.org/media/documents/2024_Shein_briefing.pdf.

 

2.    Edwards, C. (2024). Shein suppliers still working 75-hour weeks, report says. [online] BBC. Available at: https://www.bbc.com/news/articles/cg67w73nxqxo

 

3.    ‌Reid, H. (2025). Fast-fashion retailer Shein’s transport emissions jump 13.7% in 2024. Reuters. [online] 13 Jun. Available at: https://www.reuters.com/sustainability/climate-energy/fast-fashion-retailer-shein-reports-transport-emissions-up-137-2024-2025-06-13/.

 

4.    Statista (2023). U.S. Fast Fashion Market Share 2022. [online] Statista. Available at: https://www.statista.com/statistics/1341506/fast-fashion-market-share-us/.

 

5.    Thanh, T. (2025). Outrage at Shein — a Western affectation? - SKEMA Knowledge. [online] SKEMA Knowledge. Available at: https://knowledge.skema.edu/outrage-at-shein-a-western-affectation/.

 

6.    Williams, D. (2022). Shein: the unacceptable face of throwaway fast fashion. [online] The Guardian. Available at: https://www.theguardian.com/fashion/2022/apr/10/shein-the-unacceptable-face-of-throwaway-fast-fashion.