4 Ways the US-China Trade War Could Affect Small Business
The trade war between the United States and China is coming to a point, and if an agreement isn’t reached, the result could negatively impact small business.
To decrease the trade deficit, protect intellectual property rights, and promote equitable trade between the U.S. and China, President Trump has instated a 10-percent tariff on select Chinese goods- most notably, steel and aluminum. This tariff rate is currently at 10-percent and will increase to 25-percent if the United States and China do not come to a mutually beneficial agreement.
So far, the United States has imposed over $200 billion worth of tariffs on Chinese goods, and China has retaliated with $110 billions of duties on US goods (Source). Prices have already increased on both imported Chinese goods and domestic manufactured goods, and both countries have experienced intermediate declines in their stock prices.
Although Trump has indicated that the trade deadline may be pushed back if trade talks continue making progress, it is necessary to anticipate how potential increased tariffs may impact small businesses:
1. Costs may increase
Depending on the industry, businesses may experience greater manufacturing or operational costs. If raw materials cost more to acquire, overall manufacturing costs will rise. This dynamic is illustrated on a large scale by Ford, which has experienced increased costs of $1 billion because of tariffs on metals (Source). The same is true for retail businesses that purchase their goods from China. If it costs more for a company to buy wholesale products, they must choose between increasing their prices or decreasing their net profit.
2. Sales volume may decrease
Most small businesses will be forced to increase their prices, and as a result, consumers will buy less of those products. However, that is not the only reason sales may decrease. With day-to-day goods increasing in price, consumers will have less money to spend. After having to make their paychecks stretch further, people will purchase fewer products overall, leading to a widespread decrease in sales.
3. Businesses may charge more
When China introduces cheaply-priced products into the American market, U.S. companies are encouraged to reduce their prices to remain competitive. Meanwhile, tariffs on China have increased the price of Chinese goods, allowing U.S. companies to charge more for their products and services while staying competitive.
4. Investment into small business may decrease
Uncertainty is a significant by-product of the U.S.-China trade war, which may discourage investment into small businesses. Most investors are less inclined to invest when there is high risk, and the trade war has created a risky economic climate.
Overall, the future tariff increase will negatively impact small businesses. The truth is, tariffs negatively impact everyone; the quickest way to find relief is for the United States to make a favorable compromise with China and decrease the newly introduced duties.
Until then, it is essential for business owners to think about how the tariff increase may affect them, and then take precautionary steps to protect their businesses.
Photo Source: https://www.politico.com/story/2018/12/01/trump-china-xi-jinping-trade-1004954