E-commerce entrepreneurs who sell on sites such as Amazon and Shopify wait with baited breath to see if U.S. President Donald Trump will carry through with a threatened trade war with China.
A trade war between China and the US would be felt on all levels of the supply chain from producers to consumers. Given the global nature of modern supply chains, this could have a significant impact on consumers by the way of inflation and rising prices for goods that use materials from China in their products. E-commerce depends on the global economy for survival. Let’s explore how the impending trade wars would affect e-commerce sites.
Worst Case Scenario
The worst-case scenario is the type of tariff, followed by retaliatory tariffs by the other country. This eye-for-an-eye strategy could escalate well into the future. In the end, the type of price increase that would result would reduce consumption of those goods, regardless of whether the business is an e-commerce or brick and mortar supplier. It would also have a ripple effect in the areas of finance and banking. Small businesses will be more likely to sustain damage in this scenario as they are less likely to be able to bear the losses.
Economists speculate that a trade war with China would be bad for the U.S. markets, particularly because it would have the greatest effect on steel and other raw materials. It is expected that the tech sector would be hit hard by these moves, as this may force China to abandon U.S suppliers and develop a more independent supply chain. Forcing them to develop an independent supply chain could mean that even when the tariff war is over, the U.S. will never again experience exports at previous levels.
Clear and Present Danger
The potential trade war has been called a, “clear and present danger” to the U.S. economy. If this is coupled with a worsening US economy, these higher priced goods will be even less attractive to consumers. It will also mean a shift in what people are willing to spend their money on. For instance, goods that are not necessities such as decorative items or luxury items will feel the trade war more so than necessities.
This means lower profits and less money available to reinvest in the business. For e-commerce businesses, this will mean less money to restock and purchase more inventory. As the purchasing power of the consumer is undermined by the tariffs, so is the purchasing power of the business.
What Can You Do?
If you are an e-commerce business, you may be wondering what can be done to protect yourself from the effects of the trade war. For most, this will mean the need to cut costs and lower operating expenses. This may make strategies such as offshore tax shelters look more attractive, particularly for e-commerce businesses operating in countries that already have a high tariff.
You may also find that you need to change suppliers from those in China to ones from other countries. While this closes opportunities for supplies that originate from China, it opens up opportunities for others on the playing field, forcing merchants to look to goods from other countries to compensate. Suppliers from countries that could not compete with Chinese suppliers may find themselves in a world of opportunity to expand their market.
This also means that you need to make the most of your advertising and marketing efforts. Proper product keyword analysis will become even more important as competition increases and the potential client base becomes smaller. You need to know how to target your audience with precision in your titles and descriptions.
A trade war with China is not a one-way deal and there will be repercussions, many of which can only be speculated at this time. Even though no one can predict exactly what will happen, the time to start planning is now. It may be time to start exploring alternative suppliers and to optimize your marketing efforts. Starting now is the key for businesses of all types to be able to weather the storm that may be coming if the trade war picks up the pace.