Once found mostly in school books, the word tariffs is now a part of everyday conversations. And while most of us can grasp the concept of an extra tax for imports and exports, we still don’t know what it really means… what do trade tariffs mean for us, our customers, and ecommerce in general?
In this guide, we hope to answer all your questions about how Chinese tariffs affect ecommerce. Will the trade war affect your online store, and if so, what can you do to mitigate the damage?
The U.S.-China Trade War Explained
In a nutshell, the U.S. has been placing tariffs on foreign imports in an effort to bolster American industries. The country hit hardest by the trade tariffs was China, which saw a 10% tax on $200 billion worth of imports into America. China then retaliated with tariffs on $60 billion of American goods, with some tariffs as high as 25%. The U.S. has been threatening to raise the tariffs to 25%, but after an amicable meeting in Osaka on June 25, 2019, the “trade war” now seems to be in a cease-fire .
Although future tariffs remains uncertain, U.S. retailers have already spoken out against the trade war , claiming that they are the victims, not Chinese exporters. Retailers, specifically Amazon sellers, show how they must pay the extra cost in accepting shipments, meaning they must either pay additional fees to sell Chinese products, or charge the customer more to make up the loss.
The trade war has a huge impact on American retail in general, but what about how Chinese tariffs affect ecommerce? The tariffs have been accumulating for over a year now, but the long-term effects have yet to be seen. In theory, both the U.S. and China will see a boost in their domestic ecommerce markets — as the tariffs originally intended.
But the reality is that American and Chinese ecommerce has become so intertwined, both will suffer somewhat, specifically in the industries most affected by tariffs (explained below). One noticeable effect is that Chinese ecommerce markets like Alibaba will see less business, and consequently stem their investments into U.S. markets. Alibaba founder Jack Ma has already cancelled an expansion plan to create 1 million new jobs in the U.S.
What Ecommerce Industries are Most Affected by Tariffs
The economy of scales dictates that smaller ecommerce brands will be hurt more than larger ones, bad news for independent sellers on platforms like Amazon, eBay, and Etsy. So, for starters, mom-and-pop online sellers are undoubtedly affected by any upheavals in the market, including international trade wars.
But for the most part, sellers in the industries with the worst tariffs suffer the brunt of the trade war. Luckily, these industries are mostly separate from ecommerce. For example, the Chinese tariffs affect mostly automobiles, raw materials, and agriculture, all industries that typically don’t do well in ecommerce.
Automobiles are simply too large and expensive to buy online, with customers preferring to make those kinds of purchases in person, while agriculture never found a footing in ecommerce because “fresh” food is too time-sensitive, and long deliveries spoil consumable products.
There are a few exceptions, though. One of the main ones is auto-parts, which are small and risk-free enough to buy online. The U.S. used to import $10 billion in auto-parts every year, although this figure is soon to be part of history. Retailers selling Chinese auto-parts are forced to reconsider these items, as it may be impossible to keep prices competitive without going into the red.
Similarly, products that use the tariffed raw materials like steel and aluminum are also subject to price hikes. The manufacturers don’t always eat the extra fees themselves, so they may raise the prices of certain items. In particular, products that are composed of mostly raw materials should be reconsidered — here’s a quick list from the international trade group Crowell & Moring .
Our final exception is the tech industry. Because of lot of tech companies use components from China, even “made in America” brands are going to have to charge more to compensate for the increased cost of their materials. That goes for companies that use Chinese manufacturing plants as well, so the cost on any electronics products is bound to fluctuate during the trade war.
How to Mitigate Loss in the Trade War
If you find yourself suffering at the cost of the U.S.-China trade war, you’re not alone. Here are some strategies to help mitigate the loss and safeguard you against becoming a casualty of war.
Ship from Hong Kong
Hong Kong has also held a unique position as a mediator between East and West. A historically British colony, Hong Kong is both part of and not part of China, making it an ideal location to circumvent costly tariffs.
Expanding business to a new location, especially one on the other side of the world, is always a big decision, so shipping from Hong Kong may be a last resort option if you’re low on capital. However, considering that the trade war could be drawn out over the next foreseeable future, if your entire business depends on moving Chinese goods, shipping from Hong Kong may be your best bet.
Avoid Chinese-dominant Markets
Although no one can say for certain what will happen in the future, chances are the global ecommerce market won’t “go back to normal” any time soon, as even the lingering effects of the trade war continue into the cease-fire. If you’re entrenched in markets dominated by Chinese sellers, you may want to consider transitioning out of them.
With the tariffs, it’s practically impossible for U.S. sellers to compete with Chinese prices, at least for Chinese consumers. Rather than fight a losing battle, American sellers should consider cutting their losses and focusing their efforts on less tumultuous markets.
One of the simplest ways to avoid the tariffs is to avoid the products with tariffs. You could change suppliers to a brand that’s outside of the trade wars, or drop a product category altogether. Only certain product types have tariffs, so through careful inventory planning, you may be able to avoid unnecessary risks.
The good news is that Chinese tariffs only affect a portion of the trade, and the industries hit hardest — automobiles and agriculture — are mostly independent of ecommerce. The tech industry is the exception, with the manufacturing of a lot of electronics brands handled in China. For most sellers, though, enough of your business will come from non-tariffed products that the trade wars won’t be enough to topple your entire operation.
Have these tariffs affected business? Let us know how you’re dealing with it in the comments below!