Here’s what you can do if your company gets hurt by new tariffs.
5 min read
Opinions expressed by Entrepreneur contributors are their own.
The trade war between China and America is in full steam. As an ecommerce company or retailer, these coming months could be a vital turning point for your business’s supply chain. On July 6th, $ 34 billion worth of product saw new tariffs. These 818 harmonized tariff codes (HTS) affected are a far cry from the original 1,333 listed for increased tariffs by the Trump administration.
For a ecommerce company or retailer, you probably weren’t directly affected by these current increases as most products were from industrial sectors like automobiles, aerospace, and robotics.
With that said, there are already an additional 284 codes, worth $ 16 billion, that the administration is proposing the same 25% tariff for. If you’re running a company that manufactures in China, this should be alarming news.
And it’s not all one-sided. China slapped retaliatory tariffs of 25 percent on imports of several U.S. products. This means American companies looking to sell products into China also have to now pay a higher rate to export their products into this fast-growing market. Companies like Tesla have already been affected, as they had to hike prices by 20 percent due to these new tariffs.
What these tariffs mean for small businesses
For an American company producing in China, these new tariffs will drastically affect your margin. If your product falls under the harmonized tariff codes affected by this new increase, you’re going to have to pay 25 percent more to get it into America to sell to your end consumer. In this case, it doesn’t matter if you’re selling online or in retailers. What you need to keep an eye on is
- The total dollar value of the products you are importing and
- Which products fall under these new tariffs.
Luckily for you, in today’s world of manufacturing, most of the goods ecommerce stores and retailers sell can be produced even more effectively in other parts of Asia like Vietnam, India or the Philippines. Though the infrastructure in China is very strong, labor is more affordable outside China nowadays.
As an example, when the team and I at Sourcify heard about the approaching tariffs late last year, we worked with a few of our users to diversify their supply chain outside of China. For some brands in the apparel space, moving their cut-and-sew to the Philippines has decreased their costs by as much as a third and has many quality benefits.
What you should do
There are a few key steps every ecommerce company or retailer should take to prepare itself for upcoming tariffs. First, you want to review the list for the harmonized tariff code (HTS) that you import. Then, search for your own HTS code to see how much volume is actually imported into the US, and potentially spot other countries that export the same goods.
If you find other countries that are capable of effectively exporting the same products, it’s time to start shifting your supply chain outside of China.
Next, you’re going to want to estimate the financial impact these tariffs will have on your business and think now about how you want to proceed? You will either have to absorb the increase in duties or pass these fees along to your buyers. You could change what you sell altogether, but that is probably easier said than done.
A neat option to explore would be fulfillment at origin, meaning you fulfill products to end customers from China. The means your products can be cleared through customs individually already consigned to the end consumer, which, if the goods are under $ 800 per parcel, will exempt them from customs duties altogether.
Breaking down the numbers
What most people don’t realize is that these tariffs will in large part be paid for by the American consumers. Businesses who manufacture in China rarely have the margin to pay 25 percent more for the same products they were importing. This means they’ll most likely increase costs which in turn will raise prices.
Let’s have the numbers tell the real story:
- $ 50 billion: the total dollar amount of goods imported from China that may be subject to a tariff
- 25 percent: the percent of goods subject to the tariff by the USTR
- 301: The section of the U.S. Trade Act of 1974 that gives the President the power to levy duties
- 818: The number of harmonized tariff schedule codes subject to the first round of tariffs
- $ 34 billion: total in billions of the amount of goods in the first batch of 818 codes
- 7/6: The date the 818 codes went live with tariffs
- 284: A second batch of proposed goods to be subject to the 25% tariff, due to undergo public comment this summer.
- $ 16 billion: the valuation of the second batch to be assessed by the USTR after public comment
Your next step
From the Chinese side of the table, there aren’t many benefits. Companies are less incentivized to manufacture in China so Chinese manufacturing facilities may lose business. As the Chinese Ministry of Commerce said, “The United States has violated World Trade Organization rules and ignited the largest trade war in economic history. It will harm, not help, America’s businesses and people.”
From a bird’s eye view, the increase in tariffs are actually pretty small. The US imported a total of $ 478.8 billion worth of goods and services from China in 2017, so the tariff target may not seem very big relative to the total trade between America and China. Looked at another way, there were $ 150 billion of tax cuts that Congress passed on tariffs in 2017. These new imposed tariffs of $ 34 billion are small in comparison.
For you as a ecommerce company or retailer, your next step of action should be to talk with your freight forwarder and sourcing team to start diversifying your supply chain.