This is why small business owners are unwitting victims of the US-China trade war
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United States-China Trade the war is taking a heavy toll on the country’s small businesses and indicates that small and medium-sized businesses across the country have been severely affected by the rise prices.
What are tariffs and why is the government imposing them? It is essentially a tax on goods imported into the country. They are meant to serve several purposes. First, they make imported items more expensive. When this happens, consumers are expected to prefer to buy locally made products rather than expensive imported products.
So one of the purposes of an import tariff is to get people to buy products made by domestic manufacturers. Another is to protect the local businesses that make these products. If there is a greater demand for domestic products, more jobs will be created, and the economy will benefit.
However, it may not work quite that way.
The problem with tariffs is that when they are imposed, affected countries introduce their own retaliatory tariffs. This can be a disadvantage for exporters. It can also lead to a trade war – with negative consequences for all the countries concerned.
Small businesses are more vulnerable than large businesses
There are close trade ties between China and America. Many of America’s largest corporations have extensive business relationships with the world’s second-largest economy. Therefore, the ongoing trade war will affect some of America’s largest corporations.
Take the example of Apple. The iPhone maker, which has one of the world’s largest market caps, derives more than a quarter of its operating revenue from Greater China, the area that includes the mainland, Hong Kong and Taiwan. The three largest American automakers, GM, Ford and Chrysler, have extensive operations in China. There are dozens of other great American companies doing business there.
Ironically, these heavyweights will not be the hardest hit by a trade war. These giants have large financial reserves and have access to bank loans and other forms of capital. Additional tariffs may affect their profitability, but this is unlikely to threaten their existence.
With small and medium businesses, the story can be completely different
Take into account retail sector in the United States According to government statistics, the retail sector has about one million establishments in the country and total sales amount to $ 5,000 billion. The National Retail Federation (NRF), a trade body, believes import tariffs can have a huge impact on retail establishments across the country. The NRF said that as a result of the trade war, “prices will rise and the economy will suffer.”
This is not the only problem. China has a virtual monopoly on many products imported to the United States A recent article in Quartz identifies 11 product categories for which China supplies 95% or more of US imports.
What small businesses can do to minimize the impact of tariffs
It looks like import tariffs are here to stay and the trade war isn’t going to end anytime soon. Many small businesses could face higher input costs, squeezed margins, and lower demand for their products.
What Can Small Businesses Do? The most obvious solution seems to be to increase the prices. Companies that sell to other companies might have a slight advantage here. Business owners could speak to the purchasing manager at the buyer and explain the reason for the price increase.
But companies that operate in a B2C environment might find it difficult to adopt this strategy. It is difficult to convince hundreds or thousands of retail customers that prices are increased for a valid reason. This is especially true if the customer has the option of outsourcing his business to competition.
What if the increased costs could not be passed on? Business owners might consider some of the following options:
- Lower the costs. Cutting back on expenses is always a good idea. But when profits are down, it is a necessity. The focus should be on non-productive costs or those that do not contribute to the bottom line. Don’t make the mistake of cutting marketing spend. While this can give an immediate boost to the bottom line, it can lead to lower sales in the medium to long term.
- Try to identify new suppliers. Switching to another provider may not be easy. Although it is possible to find a national company that can provide the necessary products or intermediates, they can be more expensive. Another option is to search for suppliers in non-tariff countries. In any case, it is likely that small businesses will pay a higher cost for the goods if the supplier is not Chinese.
- Reduce employee expenses. In most cases, this step should be considered a last resort. It costs a lot of money to find and train good employees. A small business owner who fires an employee may be looking for a replacement in a few months or a year. Instead of reducing the workforce, it may make more sense to reduce employee-related expenses, such as overtime. Outsourcing some work can also help reduce costs.
The bottom line
The past year and a half has been marked by great uncertainty regarding import tariffs. As a result, the profitability, if not the existence, of many small businesses could be called into question.
What Should Business Owners Do? Those who depend on Chinese imports might try to develop alternative suppliers. Exporters to China could try to identify new markets for their products. While these measures can cause short-term hardship, they can increase the resilience of U.S. businesses and make them less dependent on a single country.