The tariffs are here, and the landscape of US-China trade has completely changed.
The United States is a huge importer of foreign goods. In 2017 alone, they spent 2.9 trillion dollars on imports of goods and services. It’s a massive chunk of the economy.
A tariff is a tax that’s levied on imports from another country, usually meant to hinder trade from that country. It’s usually a percentage of the cost of the goods or services that are imported.
Recently, US President Donald Trump instituted tariffs on overseas goods, particularly China. After the American tariffs were announced, China retaliated with tariffs of their own. American tariffs are set to go up again soon, which means we’re in the middle of something that has big consequences for your US-based e-commerce store.
We’re looking at a trade war.
At the moment, there’s a 90-day ceasefire on any changes, but nothing is set in stone even though both countries have come to the negotiating table. Planning for the worst seems like the prudent course.
I’ve been involved in overseas trade for years, particularly in China, and the tariffs happening right now represent a sea change in an industry that’s thrived for years. They will impact your e-commerce business. Here’s how.
1 – Prices Will Increase Across the Board
Larger businesses will weather the price increases brought by tariffs better than small ones, just because they’re big. Economy of scale applies here. If you’re a smaller business and the tariffs eat up your margins, you have no recourse but to bump up your price.
Even large companies will have to raise prices at least some—they may be able to shrink their margins a little and rely on volume, but there are limits.
On goods that are affected by tariffs, you’ll probably have to raise your prices in your e-commerce store. If you haven’t yet because you don’t want to be more expensive than your competitors, I wouldn’t worry too much. This is going to affect everyone.
You might not have been affected yet, but you may have to carry less products or raise prices next year as the full force of the trade war hits. Be ready for it. Be transparent with your customers about the reason for price increases and tell them what to expect.
2 – Companies Will Try to Turn to Other Sources for Products
The most obvious effect of tariffs is to discourage people from buying products affected by that heavy taxation. When this happens, they turn to alternate sources.
Some may decide to try to ship through Hong Kong, which is less affected. Buying domestic or buying from another country other than China may be possible in some industries, too.
Alternatively, it’s worth checking whether the product is actually affected. Some products may not be counted as Chinese goods because the main component comes from somewhere else (for example, drills with motors from Denmark are not counted as Chinese goods because the main component is from elsewhere). It’s always good to look.
3 – Chinese Direct Shipping May Increase
Packages priced below 800 dollars are usually exempt from duties, so this may herald a change in the way e-commerce stores compete. For products that fall in this category, some Chinese sellers are already shipping to the United States directly instead of going through a middleman. This will continue to increase unless further rounds of tariffs directly target this method of selling.
You may be able to use this by having suppliers fulfill orders directly, if they’re set up for that. In the future, more probably will be as people start working around tariffs this way.
If you’re in direct competition with Chinese companies that are selling cheaper than you can, try focusing on what you can affect: customer service, speed of shipping and ease of contact. If you’ve built a loyal customer base already, it will pay dividends.
I’ve seen it myself.
4 – Smaller Asian Countries Will Wee an Uptick In Manufacturing
Companies are scrambling to try to move at least some production out of China. Even if China remains the biggest player, the smaller players are getting ready to grab their piece of the pie. There are logistical challenges that the smaller countries have to deal with (skilled workforce, infrastructure, etc.), but they may be outweighed by the economic benefits.
In the long run, China is still king. But there may be a few more princes.
5 – Businesses Will Be More Cautious
In the long term, the biggest impact that may come of this is increased caution in American industries that have been affected by tariffs. When your margins come down and your costs go up, especially if you don’t have a backup plan, it can be devastating.
Some farms are already going out of business, and American automakers are hurting. E-commerce is going to take a hit next if the two nations can’t come to an agreement.
That means more businesses may slow their rate of growth and increase rainy-day funds, or diversify their manufacturing or sourcing even if it costs them a little more up front. I would be surprised if it doesn’t happen.
The trade war is going to impact your business. But if you’re aware of the landscape ahead, you can prepare yourself and get ready to meet the challenges that are sure to come. 2019 will probably be a challenging year, but forewarned is forearmed—be prepared and you’ll sail through unscathed.
Article brought to you by CEO and Co-Founder Nathan Resnick of Sourcify. Make sure to check out their website. Sourcify is the fastest and easiest way to source quality products. They help you match your product with the right overseas factory. Contact them directly by pressing here, or contact us to connect you.
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