How the New Chinese Tariffs Affect Ecommerce Companies and Retailers

By now, you’ve probably heard of the trade war waging on between America and China. The Trump administration has continued to put pressure on China and finally placed tariffs on 818 Chinese products.

This is far below the original proposed 1333 listed products, which would have caused over $50 billion in goods to have been subject to the new tariffs.  These 818 codes, worth $34 billion in goods, do not include items that are commonly purchased by consumers in America. They are focused on raw materials and products used in industrial sectors that contribute to or benefit from the “Made in China 2025” industrial policy, including industries like automobiles, aerospace, robotics, and industrial machinery.

The number of harmonized tariff codes (HTS) that are now under scrutiny continues to rise, as there are now an additional 284 codes, worth $16 billion, that the administration is proposing to include in the same 25% tariff.

As a ecommerce entrepreneur or retailer, you need to actively keep an eye on these tariffs with your freight forwarding partner.

What We Recommend

As these tariffs progress, we’ll continue to monitor the situation and begin working with our clients to make sure they have sourcing options outside of China. 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, if you look at labor rates in some of these countries, labor is more affordable outside China nowadays.

Since learning about the potential of these China tariffs last year we have aggressively expanded our global supply chain across India, Bangladesh, Vietnam, Thailand, Pakistan, Philippines, and Mexico. For now, we’re advising clients on a few points:

1) Review the list for 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.

2) Estimate the financial impact to your business and think about how you want to proceed?

• Can you absorb the increase in duties or will you pass these fees along to your buyers?
• Will you change what you import?
• Can you source these same items from factories outside of China?
• Consider doing fulfillment at origin so that your products can be cleared through customs individually already consigned to the end consumer. If your goods are under $800 per parcel they will be exempt from Customs duties altogether.

Look at the Numbers

These tariffs, which went live this past Friday on July 6th, 2018, are going to increase the cost of goods for consumers. What most people don’t realize is that these tariffs will in large part be paid for by the American consumers. Businesses rarely have the margin to pay 25% more for the same products they were already importing. The numbers tell the story:

• $50 billion: the total dollar amount of goods imported from China that may be subject to a tariff
• 25%: 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

What’s Next

It seems even the Chinese are disgruntled by the situation. 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. Such tariffs are typical trade bullying, and this action threatens global supply chains and value chains, stalls the global economic recovery, triggers global market turmoil, and will hurt more innocent multinational corporations, enterprises and ordinary consumers. It will harm, not help, America’s businesses and people.”

If you look at these tariffs from a bird’s eye view though, they are honestly pretty small. The US imported a total of $478.8 billion worth of goods and services from China in 2017, so the tariff target is fairly small relative to the total trade between America and China. It’s also absolutely tiny relative to the size of the overall American economy, which is expected to total about $20 trillion in 2018.

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.

With that said, the direct impact on individual human beings can still be large if you work in industries with new tariffs. As an example, taxing imported washing machines is a big deal for the washing machine industry and for people who happen to be in the market for a washing machine.  The Washington Post made a rundown of winners and losers from Trump’s trade agenda and noted that washing machine prices have risen 16 percent since March and that the imposition of tariffs in January was followed by two of “the largest monthly price increases since the Bureau of Labor Statistics began collecting such data in 1977.”

Despite record price increases, washing machines are still cheaper today than they were in 2015. The price of major appliances has been steadily falling for years and these tariffs have pushed them back up a little bit.

Obviously, a 16 percent price hike is still a big deal if your washing machine just broke and you need to buy a new one. Most people don’t buy washing machines that frequently and the current prices are low by historical standards.

Should You Listen to the Noise

For most ecommerce companies and retailers, we don’t need to be scared just yet. Most of these tariffs are in industries we don’t sell in. With that said, this global trade war is definitely something to keep in mind and should make you consider transitioning your supply chain outside of China.

The global team at Sourcify will continue to keep you informed as these tariffs are imposed and is here to work with you to expand your supply chain outside of China. You may even be surprised to find out that production options in other parts of Asia will be even more affordable.