One of the more intensely debated issues in our business community is President Trump’s recent announcement of sweeping tariffs on imported steel and aluminum and the possibility of broader import tariffs in the coming months. Although imports of both products from Mexico, Canada, and some select U.S. allies were exempted from the tariffs, by announcing the steel and aluminum tariffs, the President has indicated he believes that the new tariffs will help strengthen faltering U.S. industries.
In response, President Xi of China is retaliating by placing tariffs on U.S. goods highlighting that there are still a number of question marks regarding a long-term solution. For eCommerce sellers, the China tariffs aren’t just a matter of U.S. trade policy. They are something that affects their daily work and revenue.
We know firsthand that entrepreneurs and small business owners barely have time to breathe, let alone spend hours reading through current events articles. This reality is especially true during the approach to and throughout the busy holiday sales season. Our hope is to offer some of the more basic information about the U.S./China tariffs, how it might impact ecommerce, and to provide links to other resources that can be utilized as time allows.
What Are the U.S. Tariffs?
Tariffs of 25% on $50 billion worth of Chinese products were introduced by President Trump. While most of those involved items within the manufacturing industry, the President also introduce 10% another $200 billion worth of goods from China which included consumer items like electronics and furniture. This brought a major shakeup to the normal business practices of a number of companies. Large retailers, like Macys, scrambled to find different suppliers for their furniture and fabric products in case tariffs were increased again.
In January 2019, the promised increased in tariffs was postponed giving retailers and online sellers hope that the trade war would die out. That proved to be a false hope as in May 2019, the U.S. government raised tariffs from 10% to 25% on another $200 billion worth of Chinese goods. This time the tariffs included numerous consumer goods such as beauty products, all types of gloves, paper goods, raincoats, and more. China raised tariffs on $110 billion worth of U.S.-made goods in response to the U.S. increase. Click HERE for a list of American products targeted by China’s new tariffs.
Will the Tariffs Help or Hurt U.S. Commerce?
There is considerable fervor on both sides of the debate over the merits of U.S. import tariffs as is often the case with important business issues. Opponents of the new U.S. import tariffs are quick to point out that there are very few historical examples where trade wars that were a result of industrial tariffs have produced any actual winners. On the contrary, many historians believe that major U.S. tariffs imposed during the Great Depression may have intensified and even prolonged that deep economic downturn in our country’s past.
The growing national trade deficit has been cited as evidence of the need for these tariffs. Last year, the total U.S. trade deficit stood at $566 billion; the nation exported approximately $2.3 trillion of goods and services while importing just under $2.9 trillion. President Trump repeatedly stated during the signing ceremony for the new steel and aluminum tariffs that these tariffs were only the beginning of U.S. action, reasserting his belief that additional U.S. import tariffs on other industries and countries will be necessary as part of a plan to re-balance the current U.S. trade deficit.
A strong dollar makes imports less expensive while hurting U.S. exports by raising the cost of U.S. goods internationally. Between 2014 and 2016, the American dollar strengthened by more than 28 percent which many economists believe was a significant contributing factor to the increase in the U.S. trade deficit.
While steel and aluminum tariffs are not likely to have a direct impact U.S. ecommerce, additional or reciprocal tariffs and their potential impact on the international supply chain could be felt by all U.S. businesses. Whether you own an online retail business or you have a physical storefront, the new U.S. import tariffs have the potential to impact a company’s bottom line.
What is the Practical Impact on eCommerce?
In practice, tariffs mean that businesses in the U.S. have to pay 25% more for the same goods. If you’re a small retail or online business, that means that your costs increased by a quarter. Many small businesses can’t absorb that kind of decrease in their profits. In response, they have been forced to pass on some of the increase to their customers. It’s estimated that the new 25% China tariffs cost an average family of four an extra $767. With the unexpected increase in pricing on many items, the average shopper will most likely buy fewer items resulting in lower revenue for vendors.
This is a significant issue for small businesses, most of which have already begun planning their holiday season sales. Many companies are going back to the planning phase to rethink their pre-holiday purchase lists. Their focus has turned to items that aren’t impacted by tariffs and subjected to related cost increases.
Both the short-and-long-term effects of the imposition of new U.S. import tariffs remains uncertain for online businesses. Some of that uncertainty is due to the fact that it still remains unclear how wide-ranging any additional tariffs might be. Other unknown variables are how other nations will respond to the imposition of new U.S. tariffs.
Stock market observers, especially those who are critical of the idea of additional tariffs, have pointed to the threat of new tariffs as being a contributing factor to some of the market’s instability. For both the nation’s online and traditional retailers, anything that may shake consumer confidence such as market instability has the potential to impact consumer spending now and during the busy holiday season, thereby impacting their bottom line.
It is likely that the U.S. tariff debate has only just begun and there are justifiable concerns that the trade war isn’t over yet. That being said, one impact of import tariffs remains certain amongst all of the current uncertainty. Online retail businesses in the U.S. will be monitoring both the direct and indirect impact of new tariffs on their respective supply chains, business plans, and bottom lines. U.S. businesses can only hope that both sides of the U.S. and China tariff war will do their best to avoid further escalation of the situation.
Small retail businesses that have either online or brick-and-mortar locations will want to submit their purchase orders as soon as possible so that there is plenty of time to receive and market products for the rapidly approaching holiday shopping season. But with the threat of more tariffs hanging over our heads, some businesses might want to consider holding out a little bit longer so that they don’t end up selling items that cost significantly more than previously expected.
The experts at Strategy Driven Marketing would love to learn more about your brand and business goals. We have extensive experience helping organizations create and maintain ecommerce websites that are an expression of their brand and direct channel to their customers. From creative and front-end development to functionality, responsiveness, and more, SDM can help you provide an amazing user experience that will create a buzz about your brand and keep customers coming back time after time. Contact us today to learn more!