What a trade war could mean for small businesses and marketplace sellers

News of a possible trade war between China and the United States has many American companies worried. Here’s what it could mean for your business.

What’s happening?

There’s been a lot of tough trade talk in recent weeks about tariffs (or customs duties), taxes imposed by governments on imports. Every product under the sun is assigned a tariff code, and each code has a corresponding customs duty rate that varies by country. The higher the tariff, the higher the price of the imported good.

So the world took note on March 8, when President Trump revealed a plan to impose an additional 25 percent tariff on steel imports and a 10 percent tariff on aluminum products. In the following days and weeks he focused his attention on China, calling its trade practices “unfair.”

After initially saying it didn’t want a trade war, China later responded in kind. It threatened to tax more than 100 American imports — about a third of the country’s total U.S. imports.

The situation then worsened. Last week, the U.S. Trade Representative (USTR) released a list of approximately 1,300 Chinese imports that could see higher tariffs, and China’s vice minister of finance, Zhu Guangyao, told the world that “China is not afraid of a trade war.”

While it’s been a stressful few weeks, tensions may now be easing. On Tuesday, April 10, Chinese President Xi Jinping took a step toward de-escalation when he introduced the possibility of reducing import tariffs and further opening the country to international businesses.

Global markets welcomed that news. The Dow Jones industrial average jumped more than 400 points at opening Tuesday — a relief for many given the dip that accompanied the tougher talk. The president also took an optimistic tone, tweeting April 10, “Very thankful for President Xi of China’s kind words on tariffs and automobile barriers…also, his enlightenment on intellectual property and technology transfers. We will make great progress together!”

What’s changed?

No official tariff changes have been implemented yet by either the U.S. or China, and with positive feelings now flowing between Washington and Beijing, the proposed tariffs could, perhaps, be put aside.

However, as far as we know, the Office of the U.S. Trade Representative is moving forward with the initial plan. It’s accepting “comments from interested persons” about the proposed tariffs until May 11, 2018, and post-hearing rebuttal comments by May 22, 2018. A public hearing on this issue will begin May 15.

The full list of products covered by the proposed action is available here.

What could new tariffs mean for you?

If imposed, the new tariffs would mean customs duty changes (increases) on various products imported into the U.S. and China. Other countries could also be impacted, though the tariffs will be waived for Australia, Argentina, Brazil, Canada, Korea, Mexico, and the European Union.

The proposed “Trump tariffs” on goods from China — the additional 25 percent on steel products and 10 percent on aluminum products — are mostly on raw materials and machinery parts imported from China. They could trickle down to increase the costs associated with manufactured goods such as consumer electronics. In fact, the proposed list of commodities does include some electronics. Industries that would be most impacted by the proposed tariffs include aerospace, information and communication technology, robotics, and machinery.

The retaliatory tariffs China is threatening in response to the U.S. list are on various agricultural commodities and aircraft, specifically soybeans, corn, wheat, cotton products, beef, whiskey, tobacco, SUVs, and several chemicals and chemical-related products, including plastics.

Should the United States and China move forward with the proposed tariffs, steel and aluminum would become more expensive in the States. This could translate into higher inputs across the board for many Amazon sellers and other small to mid-sized retailers. Competition from foreign rivals not subject to the same tariffs could also grow. Meanwhile, American exporters of the products on China’s list would have to charge the new tariffs on their shipments to China.

Additional tariffs could further complicate cross-border sales, especially for smaller retailers, like many Amazon marketplace sellers. According to Amazon’s About Customs, Duties & Taxes page, a consumer who purchases goods from a seller in another country is the “importer of record” and responsible for complying with applicable laws and regulations. It explains that failure to properly account for customs duty and import taxes in advance can lead to “delays beyond our original delivery estimates.” That can lead to disgruntled customers, which is why many sellers choose to handle customs duty and import taxes themselves.

How to prepare

The news on tariffs sometimes seems to flow with the trade winds, making it quite time-consuming to follow. It can be difficult to determine how headlines could impact your business. Nonetheless, it’s essential for manufacturers and other businesses to keep these potential tariffs top of mind. While there’s still much to learn about how these proposed tariffs would affect businesses that deal in goods on this list, there will most certainly be an impact.

Solutions like Avalara can keep you from having to track the evolution of these changes while keeping your systems updated and calculating the appropriate cross-border tax.

Avalara partnered with Wiley to create Customs Duty & Import Tax for Dummies, a guide to help business owners and their advisors better understand the challenges and benefits of cross-border selling, including how to calculate the total cost of shipping products to customers in other countries. Get a free copy here.