We have received many emails from worried Importers in the US about the risk of a new trade war. We see daily media headlines about a looming trade war, but at the time of writing, things are still very open ended.
With this article, I hope to help you better understand the situation, and how it might impact your business, as I cover the following:
- Which products are affected by the new tariffs?
- Which products are not affected by the new tariffs?
- What does this mean for US importers?
- Why the new US tariffs might benefit Chinese ecommerce companies
- Why EU businesses might benefit from a US China trade war
- What happens next?
Keep in mind that this is a developing story, and what you read in this article might be outdated in a matter of hours. I will try to keep it somewhat updated, but I make no promises.
I also want to highlight that we are not in the business of politics. We take no stand for or against the United States, or China.
Our job is only to report how this might impact startups and SMEs importing goods from China.
This article was originally published in April 2018, a few months before the implementation of these tariffs. At the time of writing, increased tariffs are imposed on US$34 billion of imported goods (total value).
As expected, these tariffs mostly apply to industrial parts, chemicals, vehicles and other related products.
Apparel, accessories, electronics and other consumer goods are not affected as of today.
Which products are affected by the new tariffs?
The Office of the US Trade Representative announced the first batch of goods, affected by the 25% tariff, earlier this week.
Some of the affected products are listed below:
- Dental cements
- Iron or non alloy steel semi finished products
- Caps, lids, seals, stoppers and other closures, of noncellular vulcanized rubber other than hard rubber
- Stainless steel, width 600mm+, hot-rolled flat-rolled products, in coils, w/thick. 3 mm or more but less than 4.75 mm
- Textile calendering or rolling machines
- Storage water heaters, non electric
- Fire extinguishers, whether or not charged
- Brewery machinery,
- Textile printing machinery
- Molds for rubber or plastics, injection or compression types, other than for shoe machinery or for manufacture of semiconductor devices
Notice that more products might be added to this list in the near future, or removed. The list is currently under review and is not final.
Which products are not affected by the new tariffs?
Most ‘sanctioned’ products are not finished consumer goods, but machinery, injection molds and parts.
At the moment, it seems that most Amazon sellers and other importers will not be affected by the new tariffs.
For example, the following categories are not subject to a 25% import duty rate:
- Consumer Electronics
- Apparel & Textiles
- Kitchen Utensils
- Toys & Children’s Products
- Accessories & Jewelry
What does this mean for US importers?
For the average Amazon seller or Ecommerce business, the impact will be very limited. If any at all.
I just don’t see the US slapping 25% duty rates on consumer goods such as watches or T-shirts.
Placing heavy tariffs on consumer goods would directly impact US consumers, with an instant 25% price increase.
Meanwhile, the economic benefit would be limited. Watch manufacturers will move to Vietnam or India, rather than to the US.
Instead, the US government is more concerned about protecting its domestic high value added industry, and this is reflected by the tariffs.
There is also a risk that US manufacturers are negatively impacted by higher tariffs on machinery, injection molds and parts. But, on the other hand, higher tariffs could also boost the domestic suppliers of such products.
Why the new US tariffs might benefit Chinese Ecommerce companies
Cross border ecommerce, mainly from Aliexpress.com and Wish, have exploded in recent years.
Ecommerce used to be, and still is, dominated by domestic players – but Chinese companies are increasingly selling directly B2C in the US, and other countries.
The result is an enormous influx of low value e-packets, counted in the tens of millions.
The customs authorities, and postal services, are not made for managing this influx. Hence, the result is that most e-packets are not taxed.
Chinese sellers are effectively selling B2C in the US, without the need to pay any import duties or other taxes.
You can’t blame them either.
This is the responsibility of the US customs, not foreign sellers.
In theory, it’s up to the importer to file a customs declaration if the value of the goods is less than $2000. In reality, nobody actually does this.
When was the last time you filled in complex customs clearance documents after buying a wallet from Aliexpress?
Still, US companies, importing from China, cannot avoid paying import duties.
Now that the rates might increase to as much as 25% for many products, it could become even harder for American businesses to compete against ‘Zero import duty’ online sellers in China.
This is so far a hypothetical scenario, but a very likely one if the tariffs are expanded to cover general consumer goods.
Why EU businesses might benefit from a US China trade war
The EU responded very harshly to the first tariff announcement in the US. The European Union is the largest export market for the United States, and certainly has the power to strike back.
If the trade war escalates between China and the United States, EU businesses will maintain access to both countries.
But, with less American competition in China, and less Chinese competition in the United States.
That said, many European companies are shipping directly from China to the United States these days. These companies will also be affected.
Tariffs are applied based on the origin of the product, not the nationality of the company director.
A trade war could drive more importers to buy from Vietnam and India
If the 25% duty rates apply to consumer goods, we will likely see a major boost for suppliers based in Vietnam and India.
These two countries are currently the fastest growing exporters in the world, and are finally starting to catch with China in some of the following industries:
- Consumer Electronics
They still have a long way to go, but I bet that many investors, perhaps even Chinese suppliers, are looking for alternative manufacturing countries.
It should also be noted that China has large ecosystem of domestic and foreign owned manufacturers and service providers. Ho Chi Minh City or Mumbai cannot become a ‘New Shenzhen’ overnight. This is a process that will take at least 5 to 10 years. Possibly even longer.
Many importers will still be stuck with their Chinese manufacturers, simply because there are no alternatives for many product categories.
For some products, increased ‘China tariffs’ will only have a negative impact on US consumers, while the same manufacturing jobs still remains in Asia.
But the US government knows this, which is why I’m betting that tariffs will not be levied on consumer products.
What happens next? Possibly nothing.
The US wants to open the Chinese market for its own companies, and China is trying to defend its own exporters at the same time.
But remember that nothing is final.
While I think that the US will not back down and accept the current trade status quo, I doubt that this will lead to a trade war.
But it should also be mentioned that China is actually a lot more open to US companies than, for example, Japan was at the same level of development (or even much later).
Or, the way that India or Indonesia is mostly off limits even today.
The same can also be said about non-tariff trade obstacles in Thailand, which, unlike China, doesn’t even allow foreign owned companies.
Yes, China is bigger. It makes a larger impact. But at the same time there are countries that are far, far worse when it comes to discriminating against US exporters.
Let’s see what will come. But for now, the average importer got nothing to worry about.