As I’m sure you’ve heard, the Trump administration has imposed new 10% US tariffs which impact just about everything that wasn’t impacted in the first 3 lists. They can be found on List 4A & List 4B. As with every other US tariff on China throughout this Trade War, it’s triggered SMBs to go into a temporary panic and left them with the same question… “What do I do now?”
Simple answer: Don’t panic.
A lot of businesses are looking to get out of China by following large companies like Apple, Nintendo, and Dell. The issue is, they are not Apple, Nintendo, or Dell. I’ll dive into some insights for your business to consider that will help shine some light into these new US Tariffs on China and why the answer is so simple.
The U.S. sanctioned tariffs on it’s long-time trade partner, China, have been part of an ongoing trade war that started in early 2018. There are a lot of people that believe China is paying for these tariffs, when in fact it’s the company that is importing the products to the US who pays the price. This ultimately is passed down to the end-consumer in one way or the other.
Here’s a quick breakdown of those the tariffs work:
In large part, these tariffs were marketed to bring jobs back to the US. However, what any company that’s currently sourcing from China sees is that they’re simply adding a larger burden onto those importers and pushing manufacturing to surrounding SE Asian countries.
Moving Manufacturing Outside of China
As mentioned above, many companies are looking for alternatives to China due to the new US tariffs put into place. The solution seems simple enough… right?
It’s not as easy as it seems (even if you’ve read otherwise). We dive into it in another Noviland Blog, US-Tariffs: To Move Out of China or Not? How Do I Minimize the Impact of Staying in China.
Many Chinese factory owners started the process of branching out to surrounding countries to set up shop, and many have had great success in doing so. However, to entry are growing taller, as you can read about in the aforementioned article.
Large Companies are Doing It
Yes, you do see the large companies like Apple and Nintendo begin to move portions of their production outside of China. However, what you don’t see is what is happening behind the scenes.
These large companies are investing hundreds of thousands, if not millions, of dollars into making the move and are working closely with the factories that they’re shifting production to, to ensure they meet all US compliance regulations. Additionally, they are also investing in the growth of these factories in order to keep a tight hold on the quality of their product.
Another key factor to consider is that these large companies already have very well established partnerships with their logistics companies and, more often than not, already had a hand in manufacturing in the countries they’re shifting resources into. This means they know how that country’s infrastructure works and can adjust their production schedules accordingly.
SMBs Shifting Production because of US Tariffs
Unlike the large corporations that have begun planning their shift long before the US tariffs on Chinese goods started, SMBs don’t typically have the resources to essentially partner with the factories.
Although many of the SE Asian countries are strong in manufacturing, they are not quite ready for the demand shift that these new tariffs are causing. Their infrastructures aren’t properly built to handle the full demand shift and factories are scrambling to meet all of this newfound demand.
What does this lead to? A lot of over-promising & under-delivering.
In a recent trip to Vietnam, Jie Xiang, VP of Asia Procurement at Noviland, noticed that many factories are switching their production to produce products that they’ve never made before. Many factories are doing this because they don’t want to pass up a lot of new opportunities.
Unfortunately, that’s coming at a cost: over-promising their clients much higher supply than they can actually make, lack of consistent quality due to the new production and unreliable labor, and price adjustments late in the sourcing process.
These are of course obstacles that will pass in time, but come with a steep learning curve. For any SMB this can be a very time-consuming and costly learning curve.
What does that mean for your SMB? Diversifying your supply to surrounding SE Asian countries is a great long-term plan, however shouldn’t be seen as a short-term solution.
Why You Shouldn’t Panic
Cooler heads always prevail. Although your COGS will go up while continuing to source from China, your competitors are likely experiencing the exact same pain as you. The market price for your products will start to normalize and you will start to notice your competitors raising their prices slightly to adjust for the tariffs.
Some of them have likely already started the process of looking outside of China, however you have an edge over them – this article. The time they spend trying to source outside of China is time you’re able to reinvest into parts of your business that you can actually control, such as marketing and building your brand.
What You Can Do
Although the tariffs might have impacted your margins slightly, you’re going to notice a lot of your smaller competitors drown out because they are worried more about their margins than their brand.
Having spoken to many Amazon Sellers & Coaches and Amazon Service Providers about this, we were able to pinpoint some options Amazon Sellers have that can help.
For many businesses this may mean actually optimizing the processes you’re currently performing.
Amazon PPC: If you’re an Amazon Seller, that may mean taking a deep consideration of your Amazon PPC. You can optimize your dollars spent by using our friends over at AsteroidX. Sign up using this link and you’ll get $400 off your second month of service.
Freelancers: If you want to focus on building your business, you’re going to have to free up a lot of your time. Check out this article written by Connor, CMO at FreeeUp, about how to outsource eCommerce operations so you can focus on what matters most.. Growth!
Marketing: It’s the perfect time to re-evaluate your marketing strategy and seeing what new advantages you have over your competitors. Cut out anything with a low ROI to hone in on what brings in the big bucks.
Sourcing: Tackling where these COGS increases are stemming from isn’t something you have to do alone. Taking shots in the dark through marketplaces like Alibaba often times come with significant learning curve costs, whether it be time or money. Using a service like Noviland not only helps you streamline your sourcing, but also mitigates the risks involved in the process.
Noviland is already working on branching out to alternatives to China, but if you haven’t already figured it out from this article… it’s quite the process. Ensuring Noviland’s users have a seamless, hassle-free sourcing experience is the pillar of Noviland’s mission and reducing your overall sourcing costs is our top priority.
The additional 10% US tariffs that Trump has imposed will almost certainly affect your pricing. However, with the help of the sourcing professionals at Noviland, you can reduce your FOB product cost so the additional tariffs don’t impact your final, delivered price as much.
Noviland works with a wide variety of companies including eCommerce Sellers, Wholesalers, Developers, and US Manufacturers. See why hundreds have signed up to simplify & streamline their sourcing, today.
Francois Jaffres is the COO of Noviland.com, a rapidly growing sourcing & purchasing solution making sourcing from overseas factories simpler. He has worked with over 500 businesses to source from China, has a background in Industrial Engineering, and is very active in the Amazon Facebook Groups. He currently splits time between Campbell, CA and Pittsburgh, PA.