Trade with China plays a vital role in the health of the e-commerce industry. Whether many sellers realize it, their online business – and commerce at large – has been impacted by the trade war and its shock dealt to the global economy. This first blog in our series was created to better understand this relationship, discuss the latest developments of the ongoing US-China trade war, look back at how we got here, and provide trustworthy insights into how online merchants and brands can mitigate their risk for the future.
Intro to the Trade War
For decades, businesses around the world sourced and manufactured their products in China, importing them directly into their domestic market. The rise of e-commerce has expanded the procurement and manufacturing to many other countries, and no region has benefited greater from cross-border manufacturing than China. This has been the story since the 1980s when China’s manufacturing started taking off. Due to low manufacturing and labor costs as well as a relatively well-established infrastructure, demand for products from China grew and it became the world’s second largest economy. However, since May 2018, a trade war between the United States of America and the People’s Republic of China has shifted the norm. Invoking actions that hit imports and exports between the nations hard, and with little rationale to support them, many businesses are left perplexed on the best practices going forward.
Increases in Tariffs
Talks about the unfair trade practices from China existed before Donald Trump became president of the United States. It was part of his promise to the American people to do something about the trade imbalance and make a deal with China. In April 2017, President Donald Trump and President Xi Jinping started negotiations to reduce the US trade deficit with China, however, they were unable to come to a mutual understanding. Eventually, in May 2019, Trump announced that America would increase tariffs on $200 billion worth of Chinese goods, raising the tariffs from 10% to 25%. This became a trend, as additional tariffs were announced the same month, and a second wave of tariffs got enacted partially in August 2019 and partially on December 15th. There were also talks to put tariffs on finished electronics but those tariffs have yet to be enacted as both parties returned to the table for further negotiations. The third wave of tariffs is currently on hold and may or may not be enacted after all.
American Businesses Affected
Unsurprisingly, businesses in America are affected by the trade wars. Ever-increasing numbers are leaving or looking to leave China and manufacture or source goods elsewhere due to increasing costs and lower profit margins. In July 2019 alone, more than 50 global enterprises, players such as Apple and Nintendo, announced they would leave China. More followed in September, as 40% of all US companies in China are said to consider relocating. Those are big multinationals. What about smaller businesses? Well, according to a survey conducted by Amcham China, 74.9% of all entrepreneurs surveyed said that the increase in tariffs is having a negative impact on their business, especially because of a lower demand for products (52.1%), higher manufacturing costs (42.4%) and higher sales prices (38.2%). The data likely reflects what your business is currently experiencing.
What Comes Next?
What was obvious before, no longer is. No one who ships from China to the US is immune to the ever-increasing and somewhat spontaneous costs of this ongoing trade war. Although there have been talks of a truce, the cease-fire seems rather fragile and discussions have been difficult. With the current Coronavirus crisis on hand, it seems unlikely that China will be able to uphold its part of the new agreement. Although there are talks of improvement, it is still wise to consider new strategies if you source from or sell to China as the damage caused by these trade wars will continue to linger long after.
If your business has been affected by the ongoing US-China Trade Wars, Floship would love to hear from you. They’ve tailored their business to creating innovative ways businesses can save on exporting from China. Be sure to read the next article in our trade war series that takes an insightful look at the specifics of how American and Chinese companies are being affected by the Trade Wars and the strategies they are developing to stay afloat.