Here we go again! After months of economic ceasefire, both China and the U.S. have announced the implementation of new tariffs beginning on June 1st. This is a large setback for both economies after rumors that the two governments were close to an agreement. However, China was apparently “back tracking on new laws (i.e. protection on U.S. intellectual property) that were apart of the deal” With this new escalation, it seems that this trade war is going to get worse before things can get better. In this article, I will discuss how your E-commerce business can prepare itself for the trade war ahead.
How this Trade-War will affect your E-Commerce Business
On Monday, May 10th, President Trump announced that he will impose a fresh, $200 billion tariff on Chinese imports. Since President Trump already implemented a tariff on ALL Chinese goods, this must mean that he wants to further increase the tariff rates. The new rates will go from 10% to 25%. This is potentially a huge loss for a large majority of E-Commerce vendors–especially the vendors that already have a shallow Gross Profit on their goods. Since this announcement has given little to no time to stock-up before the price hike, sellers need to think of efficient and ways of dealing with this issue.
E-Commerce Pricing during Trade War
One of the hardest decisions for Online vendors has always been how to effectively price your online goods. With hundreds of different competitors, companies must effectively look at the basic supply and demand for goods. This has always been an issue since October and thoroughly addressed in the previous blog post; however, a 15% increase on international taxes will create a larger variance of prices in the affected markets. Online sellers need to closely watch how their competitors are pricing their SKU’s. Undercutting your competitors will always increase sales, but at what cost? Selling more isn’t the same as being profitable. With the increase in COGS, now is the best time to continue optimizing your listings, reviews, and SEO strategies. Sellers that will be the least influenced by the tariff hikes are the ones that can still sell more than others at higher prices.
Optimizing your E-Commerce Brand
The need for E-Commerce vendors, especially Amazon-orientated sellers, to continue creating and boosting their online brand has grown even more important. It is a industry known fact that the most valuable E-Commerce stores are the ones that can be recognizable. The best way to do this is to push for diversified selling strategies through websites like Shopify, eBay, and, the most influential, your own personal website. Companies that can create brand recognition will always outsell their competitors. Companies strictly on Amazon will face the hardest impact since Amazon FBA costs and Fees takes roughly a third of one’s gross profit; these higher costs leave little room for sellers to experience a 25% hike in their raw COGS. In harsher economic conditions, companies that have diversified their strategies and effectively managed their online presence are the ones that will be able to weather the storm.
In conclusion, the Trade war is a threat to E-Commerce vendors, but not the end of the world. Using effective management, companies should now be incentivized to find better ways to develop their products. Of course, there are other methods to work around this issue: negotiating terms with your supplier, find supplies outside of China, etc. However, it appears that the term “trade war” is only just taking relevance in our culture. With globalization and E-commerce seemingly growing together, the world’s trade system may just need some restructuring. If you have any pressing concerns or bookkeeping needs about the trade war, contact us for a free consultation!