Under the strict restrictions of the US, the trade war with China shows no signs of cooling down. And, people from both the US and China are bearing tremendous losses. The example of Amazon’s merchants recently is the most evident proof.
In these recent years, Shanghai business Yung Lin has developed quite a decent job on Amazon. They provide wrenches, screwdrivers, and other tools. Everything works lovely until a beautiful day; President Donald Trump imposed tariffs on Chinese goods.
From then, Lin, as well as other Chinese vendors on Amazon, have been facing a difficult question. Cover the additional cost by themselves or pass it on their American customers?
Both choices are risky. For Lin, he decided to raise the products’ prices. As a result, just two weeks, the sales of some products fell by as much as one third.
What Are The Merchants’ Damages Under The Trade War?
Global Amazon.com merchants are feeling all mixed-up about this decision. This trade war has caused tons of issues towards their business model.
Typically, Chinese merchants resell inexpensive Chinese goods to US customers at a higher price. However, Trump imposing another tariff of $300 billion on most consumer goods, makes the life of Chinese merchants much challenging.
Adverse Effects Coming After The Embargo
The most challenging decision now belongs to mom and pop sellers. They cannot wait for Trump’s decision. Christmas is coming soon, and they’ll have to find out a way to catch up with the season.
Most of them have to re-calculate the prices and place factory orders to be in time for the lucrative season. You may wonder what makes this period so valuable to merchants. It’s because the revenue they earn in Christmas takes up to half the income of one year.
Among the escalated situation, the possible solutions are increasing the prices, delivering production to other countries, storing inventory. However, all of them come with their costs and complications.
Most of these businesses are one-person shops, which makes them even more vulnerable. They don’t have the support of big companies; therefore, they cannot have anyone negotiating the shift of tariff costs.
“There is a significant problem for smaller companies. The administrators announce one thing today, and the next day, they do something else. This will pose tremendous risks.”said Joel Sutherland, the Managing Director of the Supply Chain Management Institute at the University of San Diego.
Impacts On Amazon In the Trade War
In the near term, Amazon seems not to receive as many effects as merchants. However, the tariff hike could hit Amazon hard, too. If the sales fall and Amazon reduces the commissions and fees charging merchants, it could be a real problem. The fact that we witness a decrease in shares of 1 percent at 12:08 pm in New York clarifies the effects of the prohibition.
Movements Of Regulators During The Trade War
Whether the situation becomes better or not, it depends on the decisions of the US and China. On 28-29 June, there has been a meeting between Chinese President Xi Jinping and Donald Trump in the G20 summit. During the event, both sides achieved agreements on the resuming trade talks after a weeks-long discussion.
However, many predict that even if they come up with an agreement, the relationship between these two superpowers will probably remain.
“We assume that the embargo will remain,” stated Chuck Gregorich, a Chinese merchant selling hammocks, patio furniture on Amazon. “This won’t be over in just one or two years, and definitely, we cannot avoid the impacts.”
Solutions and Their Setbacks
The same as other importers, Gregorich chose to speed up orders early to avoid the hike from 10% to 25%. He has paid an extra $400,000 on shipping with the hope for the delay of the tariff increase.
However, opposite to his guessing, Gregorich has to move 30% of his production to Vietnamese (and other) factories. A lot of people also share the same thoughts. Many other Amazon merchants are thinking about shifting to factories in India, Southeast Asia, and Central America.
In 2007, Michael Michelini decided to shift its location from New York to China. And eight months ago, he as well as his wife and kids chose to move to Thailand. Michael considered it’s an excellent way to avoid the hike. “Now when it comes to China, I think of risk,” he shared.
However, there are lots of risks when it comes to moving. Merchants believe that it could take years searching for the right factory, preserving raw materials, and testing product’s quality.
Jerry Kavesh is a merchant on Amazon selling cowboys boots and hats. Recently, he has relocated to a new factory in India. This costs him several months just to stabilize everything.
However, Kavesh still has to import Chinese raw materials, which negates any advantage. According to his last report, he’s to reduce his holiday inventory by 15% and impose a price hike of 12%. In the end, this will hurt both sales and potential customers.
“When the US government tells us to move, they haven’t predicted all the costs,” shares Kavesh, the 3P Marketplace Solutions’ CEO. “It’s not realistic moving all of your production over to a new place all of a sudden.”
Even when US merchants try to move to different locations, their Chinese partners are searching for new European, Japanese, and Australian customers to deactivate the hit from the US.
“For Chinese sellers, money is money,” said Eddie Deng, a former Alibaba Group Holding Ltd. strategist, “There are no differences whether it comes from the US, India, or the Middle East.”
Actions Of Amazon
Amazon seems to be quiet about the trade war. However, they seem to have empathy for their clients. Behind the scenes, Amazon decided to spend some Chinese vendors up to 10% more for products after the tariffs.
“Companies of all sizes within the supply chain are finding a way to fit in the increased costs after the tariff hike,” an Amazon representative said to the public. “We’re following closely and discussing with vendors to make the most suitable adjustment.”
To sum it up,
When mentioning the toughest part of the embargo, most people agree that it’s the uncertainty. “All of this might be just a head fake,” comments Steve Simonson, a Chinese-made home goods and electronics merchant. After the tax hike, he has been looking for factories in other countries such as India, Vietnam, and Central America. He also added that this might all go away in just two months, and all of his time and effort will be for nothing.