Prognostication of the impact of President Trump on E-commerce industry
Finally, the most powerful nation in the world has chosen its new President. What a nightmare of an election it was! Both the sides fought in this battle and the entire country became polarized between two candidates. Now half the country is elated and the other half is shocked. No matter what side you are on you force yourself to move ahead and hope that the new President will keep country’s interest in mind.
Both, Donald Trump and Bernie Sanders were products of the grassroots movement. The fact that people got attracted towards them is proof that the American people understood our current system is not the best one and needs tweaking. During their campaign, they were successful in communicating the impact of Trade deals such as TPP, TTIP and TISA. President Trump was successful in making Trade with neighbors and other countries such as Chin as a central theme of his campaign. He recommended wide ranges of change in current policies during his campaign trail which, according to him, would benefit American businesses.
Besides pulling outof the Trans-Pacific Partnership deal, which was Barack Obama’s landmark achievement, and pressurizing Mexico to pay for the promised wall between USA and Mexico, no other policy got as much popularity as a promise to implement tariffs on Chinese imports. Looking at the first weeks’ executive orders issued by President Trump, it is clear that he is committed to the promises made during the campaign trail. It will be safe to assume that tariff on Chinese imports is coming soon and it will surely impact the entire country.
Let’s prognosticatethe impact of estimated 45% tariff on imports from certain countries, including China.
We spoke with the management team of Bargained.com, a recently launched marketplace where consumers can directly buy from the manufacturers, distributors and suppliers from China, Singapore, Taiwan, and other far east countries, to understand how the upcoming tariff will affect the E-commerce industry and itsconsumers.
Mr. Manish Chauhan, CEO of Bargained.com explained that Tariffs are very popular and are used to stimulate demand for domestic goods. Many countries, including the U.S., have used tariffs effectively. However, the effectiveness largely depends upon the strength of the manufacturing industry in a country. In the year 2016, it is estimated that US imports from China will touch $450 Billion as against US exports to China are below $120 Billion. It is assumed that when the goods from China and other countries start to get expensive, consumers within the country will turn towards the domestic goods. Tariffs will only be effective if domestic companies are manufacturing goods that are providing alternative to Chinese products. 45.14% of the imports from China in 2015 were Cellphones.Some other products were; household goods ((13.38%), Computers (9.08%), Computer Accessories (6.30%), Toys games (5.71%), Telecommunication Equipment (5.61%) and Apparel (5.09%). If American companies cannot produce alternative products in these categories, consumers will be forced to buy Chinese goods at a higher price. Comparing the labor cost and infrastructure cost in China, it seems that it will be very difficult for American manufacturers to provide cost-effective alternative to the consumers.
Mr. Chauhan also explained that the E-commerce industry is one of the fastest growing industry. During the year 2015, E-commerce sales were a unprecedented $341.7 billion which was a growth of 14.6% over previous year. According to the U.S. Commerce Department, online product sales now account for a third of America’s retail growth. The contribution by Amazon and a few other large E-commerce businesses is undeniable yet so many small businesses are increasingly sourcing these products from overseas manufactures in China and other countries through wholesale companies which will be impacted the most. (re-word the last part of the sentence. Doesn’t make much sense). Low overseas manufacturing costs that make these small E-commerce businesses profitable, will get affected by new tariff. These businesses will look at suppliers from other countries that are not covered by the tariffs and procure goods to meet their demands.andIf they are unable to find such suppliers, they will see negative growth or even shut down their businesses.
The tariff could also impact our exports. Countries that are affected with the upcoming tariff can retaliate with counter tariffs, making exports from the US less competitive. In 2015, Amazon sellers, have shipped over a billion items to more than 185 countries. Retaliatory tariff by these countries could affect exports by Amazon.
In theory, it is true that the tariffs will bring back manufacturing jobs to the U.S.However, an increase in tariffs will hurt consumers and the small businesses in the short term. It will choke the small E-commerce sellers and we will see a rise of unemployment in this industry.
According to Mr. Chauhan, traditionally Republican politicians are more business-friendly and believe in fewer regulations. They also lean towards lower taxation forwealthy businesses. It is still not clear whether Republicans will support Mr. Trump in his plan to raise tariffs on imports or will push for more free trade. In coming days, E-commerce sellers must pay very close attention to the actions of the Trump Administration and proceed with caution on their expansion plans.
As far as their plans, Kiran Raghunathan and Andrew Pour, CTO and CMO of Bargained.com are hopeful that the decision on tariffs will be delayed and announced only after careful studies. Until such time they are going ahead with their expansion plans for Bargained.com. Currently they have over 400k products on their site and they are moving ahead with adding over million products in next couple of months.