What will the impact of the new tariffs enforced by China be on the functioning of my E-commerce based business?

The word Tariff used to be restricted for use only by certain professionals, students and academicians. Times changed, and now, no conversation related to any business is complete without a discussion about tariffs. Tariffs are much more than mere additional tax levied on imports and exports as most of us know it.

This article will lead you through key points relating to the trade tariffs placed by the People’s Republic of China on all trade, and try to provide a glimpse of the history of the current trade war and on how it may affect your e-commerce based business. The final section offers suggestions on implementing damage control to lessen the effect of Chinese Tariffs on your business or E-commerce venture.

How did the trade war begin?

Wars have long stopped being fought only on the battlefield. The current war which has everyone enraptured is the trade war between the United States of America and the People’s Republic of China.

The United States, in an attempt to grow their economy and support American products and industries imposed tariffs on almost all foreign imports. China, a major international exposure was hit with tax rates of more than 10% on imports of values upto 200 billion USD. China, in an act of retribution, raised tariffs on American goods worth more than 60 billion USD, with some tariffs ranging upto 25%. The United States tried to retaliate with threats of raising tariffs to 25% or higher.

After a lot of conversation, and meetings between representatives of both countries, the trade war ceased into an uncertain pause by both sides temporarily.

The retailers and business representatives of the United States spoke up against the imposing of trade tariffs by explaining how they or their customers will need to bear the increased costs associated with imports. American retail was greatly affected by this act of their government to promote American made products and businesses.

While the long term effects of tariffs on a country are yet to be determined, the trade war between the PRC and the USA display the immediate effects on a country who is imposing tariffs on imports.
The visionaries dream was to sustain the country fully on local products, however, both countries failed to realise how dependent the markets had become on each other over time, and hence deeply affected by the tariffs. This would in turn, affect all direct and indirect industries affected by changes in the rates of Tariff.

Another possibility is that homegrown Chinese E-commerce giants like Alibaba would invest less resources into the country and more into the markets of the United States.

How do these Tariffs influence my E-Commerce based business?

Smaller businesses bear the brute force caused by big changes like Tariffs and other moves in an international war of trade. Smaller businesses, wholesalers, start-ups and individual-run organisations depend heavily on resource inflow from import and a tiny change in the rate of taxes could lead to the shutting down of business.

Individuals who use platforms like Amazon, Etsy, Shopify etc and are dependent on imports for products of their choice will be affected inadvertently because of the rise in prices, and might soon go out of business.

Individuals of the E-commerce industry however fare better than individuals who are in industries with heavier imposed restrictions and tariffs. For instance, the Chinese Tariffs affect businesses which rarely engage in E-commerce.

Industries like Automobile and Agriculture rarely step into E-Commerce due to various reasons, and these often bear the brunt of imposed tariffs. However, businesses which import products related to these industries will ultimately suffer or go into deep losses. The tariffs also lead to an increase in cost to the end customer.

Companies which are local but import components and raw materials will also be affected, leading their products to increase in price during the whole timeline of a trade war.

I’m concerned. What precautions or damage control can I execute?

To escape being one of the many companies which get crushed during a trade war, you as an American from the E-commerce industry will need to take preventive measures.

First, play smart, and ship products from China to Hong Kong, and from Hong Kong to you. This ploy could very well help you escape tariff imposition from China. Another option is to expand your business and have a home base to operate out of in Hong Kong.

Trade wars are extremely fickle, this means, if your business is entirely dependent on products from China, the best way to safeguard your business would be to use Hong Kong as a neutral zone.

Second, if you are in a market predominantly filled with Chinese businesses and you find it difficult to remain competitive in pricing, quantity and quality, then it is best for you to move out of the market itself to avoid being crushed on during a trade war. It would be best to look out for a different market, or to leave the entire market itself and invest into other less-affected markets.

Third, The easiest way to avoid paying tariffs is by tweaking the supply chain to find a less tumultuous supplier, preferably one who is not involved in trade war. Individuals in the industry can also, alternatively choose to drop a product category which has high tariffs for the entire duration of the trade war or longer. This planning would help mitigate risks associated with tariffs and is a safe way out of being a victim in the war.

Most individuals involved in E-commerce do not depend completely on imports and hence, the trade war should not greatly affect business or market.