Trade War: What it Means for Amazon Sellers
For those who have been living hiding under a rock, there are beginnings of a trade war between China and the United States. This can be upsetting to businesses and consumers alike, and in the world of Amazon sellers, where many people buy from China, it is especially distressing.
Typically, the United States has been one of the biggest proponents of free trades. With the exception of North Korea and Cuba, almost all countries have unfettered access to the American marketplace, typically without any substantial duties or tariffs. A break in this was a significant change in the historical United States policies related to trade.
First Shots Fired
In early 2018, President Trump announced the first tariffs. They started on washing machines and solar panels, but soon escalated to include raw steel products. China was hit the hardest, with 25% tariffs on all these goods, but Canada, and even the European Union, were hit with the steel tax as well. There was some public backlash, and China threatened to respond in kind to any sanctions.
In response to the American tariffs, the Chinese government created a round of tariffs on billions of dollars of U.S. goods, with an emphasis on agriculture. This impacted both the general American exports, but was considered highly targeted given the proclivity for the agricultural sector to strongly support President Trump.
In July, even more tariffs were announced by the United States, this time on more industrial goods, covering roughly $50 billion in Chinese goods. Up through that point, the United States had tried to avoid any tariffs directly on consumer goods. This still had some strongly negative effects on select American companies that relied on Chinese imports to function efficiently.
Where Things Stand
All signs point toward a long and protracted trade dispute between China and the United States. As retaliatory tariffs take effect on U.S. goods, President Trump has publicly stated that he is willing to advance tariffs, eventually, to all Chinese imports. Given the large trade differential, there is a limited amount of 1:1 retaliations that the Chinese government can make in response.
The most likely response, which will mitigate many of the desired tariff effects, is a change in currency exchange rate. China controls the exchange rate, and they have used this in the past to their advantage. Already, we have seen the Yuan lose 10% of its value compared to the US Dollar. This slight change eliminates much of the increased prices already. After accounting for the 10% devaluation of the Yuan, the practical price increase, including the tariffs, is only 15%.
What it Means for Amazon Sellers
The changes in the tariffs can certainly impact Amazon sellers. But there are potential action items for sellers. First, many importers are bringing product in from China, as there is no significant infrastructure to build some of these products in other countries yet. It is quite possible we will see an increase in prices all across Amazon to account for this.
If you see your competitors raising their prices, don’t be afraid to follow suit
Prices have to be seen as fluid. While usually it is a race to the bottom, sometimes outside pressure causes an increase in prices, so pay attention.
The devaluation of the Yuan must also be carried over to your negotiations
If you have negotiated your prices in Yuan, you will have no issues, just continue paying the same price. If you have negotiated your prices in US Dollars, you should come to the table when ordering more product expecting a decrease in prices based on the change in currency exchange rates.
Not all products are subject to this import tax
The world of HTS codes is one of subjectivity, gray area, and fluidity. It is important to work with your freight forwarder to find codes that are least restrictive in terms of tariffs while being within the bounds of the law. Similarly, most tariffs are not applied to air express shipments through companies such as Fedex and DHL. For smaller shipments, it may be better to use some of these companies rather than a company that will result in tariffs being paid.
Pay close attention to tariffs when doing product analysis. Use these new prices in the AMZScout revenue calculator tool to get accurate estimates even with the new charges. Be sure to negotiate the best possible prices, accounting for exchange rates. Finally, find the best way to import your products using the shipping service and import codes that are most favorable to your company. Like most issues, the sky is not falling, and in reality business will continue as usual for most sellers!