America is the one of the world’s biggest importers. Each year, the U.S. brings various goods and services into its country from abroad to sell. In 2017, the United States spent $2.9 trillion on good and service imports.
Although America’s largest trade partner—in terms of both imports and exports—is Canada, the country also does an amazing amount of trading with China. When someone in America uses Sourcify to buy goods from China, the transaction counts as an export for China and an import for the United States.
Even though America could technically produce a lot more technology, clothing and other goods than it does, there’s no need for the country to increase its production.
Thanks to international trade, the United States doesn’t have to make everything on its own because it can trade with other countries that have a comparative advantage in various production industries. A comparative advantage means that businesses in various countries can make a specific product more efficiently than any other company.
For instance, Chinese companies commonly produce personal computers, mobile phones, solar cells, air conditioners and shoes because they can do so more efficiently and affordably than companies in other countries.
The above explanation of trade seems pretty straightforward, but it can easily become complicated when tariffs and other taxes come into the picture.
What Is a Tariff, Exactly?
On the most basic level, a tariff is a fee that a government charges a foreign company when the company brings goods into the country. Tariffs are traditionally placed on specific groups of products, like dairy and other agricultural goods.
When a tariff makes it more expensive for a foreign company to compete with local prices, buyers tend to favor domestic production because it’s more affordable.
A tariff is commonly a percentage of a good or service’s cost.
For example, if the United States places a 20 percent tariff on steel, a company from another country that wants to bring $1 million worth of steel to America will have to pay the United States government $200,000.
Generally, trade is beneficial for all parties involved. Sometimes, though, trade gets complicated, and tariffs become so serious that they lead to a trade war.
There is a current trade war between China and the United States. A trade war occurs when two or more countries try to damage each other’s trading, generally by creating tariffs.
The Current Trade War
Earlier this year, President Donald Trump instituted a 10 percent tariff on $200 billion of Chinese products. By the end of the year, President Trump’s tariff is set to increase to 25 percent.
In a response, Xi Jinping, China’s president, created a tariff that’ll cost the United States about $60 billion. At this point, it seems that the American-Chinese trade war will only continue, which may make you wonder how it’ll impact your e-commerce store.
Impact On American E-Commerce Businesses
The fact of the matter is that your e-commerce company might be negatively impacted by the new tariffs. If you sell beverages, meat, medical equipment or metal online, you’re probably already suffering from this year’s trade restrictions.
For those in the retail industry, the impact of current tariffs probably won’t be felt for a few months. If you run a smaller e-commerce company and source products from China, tariffs may require that you carry less products or raise your prices across the board next year.
How Do I Protect My Company?
Trade policies are totally out of your control, but how you prepare for them and respond to them is up to you, however—the following four tips can help you protect your company:
1) Be Transparent With Customers
Next year, your e-commerce store may need to raise is prices.
Before you do this, make sure to reach out to your customers, especially the loyal ones. Create a plan for how you’ll communicate why you need to your prices in a way that matches your overall branding.
2) Talk to Your Suppliers
Depending on how long you’ve been in business, you may have an ongoing relationship with your supplier. Reach out to your exporter and see if you can lock in a long-term deal with them now that’ll help you avoid some of the negative repercussions of future tariffs.
3) Plan Ahead
Prices are climbing, and they probably won’t stop increasing soon.
Depending on your current financial ability, you might want to stock up on your essential products now instead of down the road. Also, think about supplementing with other products.
One way to mitigate the damage created by tariff-related price increases it to source some of your products from domestic companies.
Another way you can prepare is to examine your current profit margins.
Large businesses often survive tariff wars because they can absorb and offset their costs. Although it’s harder for smaller companies to eat increased costs, with proper planning, it can be possible.
Once you have a better knowledge of your profit margins, you can look at your company’s current financial status to understand how you can shift around money to withstand tough financial times.
4) Get Involved
The World Trade Organization (WTO) deals with the rules of trade between global nations. It’s the WTO’s goal to help organizations across the globe produce and buy goods and services. As such, the WTO has been challenging current tariffs.
If you want less regulation on the way you do business with China, you can get involved. File complaints and speak publicly about why tariffs hurt small business and the United State’s economy.
Weathering the Storm
As the weeks pass, trade tensions between America and China only seem to increase.
While the back-and-forth between the two countries continues, American businesses may struggle to understand how the trade war will impact their e-commerce stores.
There’s no singular way to know the future impact of any trade war, but that doesn’t mean that there’s nothing you can do to protect yourself.
No harm can come from looking at your organization’s current status and developing a plan for protecting yourself for the upcoming uncertain times.