Tariffs Could ‘Upend’ the Ecommerce Supply Chain

Price, selection and country of origin could shift

Last year, manufacturers in China produced more goods for Americans than any other nation, but potential tariffs on electronics and high-value items in particular could shake up the manufacturing landscape for those sectors.
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Despite President Trump’s assurance the trade war with Chinese President Xi is “very bad for China, very good for USA,” it is increasingly likely that manufacturers, retailers and consumers in both countries will feel aftershocks.

Production may shift away from China, third-party sellers may raise prices and consumers may find a more limited selection. Then again, they may not. Here’s how analysts, marketers and sellers see this trade war playing out.

For his part, Oweise Khazi, senior principal at Gartner and lead Amazon analyst, said the new tariffs haven’t affected categories that drive a lot of volume on Amazon, like apparel, consumer electronics and CPG, so he doesn’t see this altering core categories for third-party vendors.

That being said, Khazi noted it will be harder to source products in the categories that fall under the new tariffs, and U.S. importers from China in those sectors will have to move their businesses to other parts of Asia or cut costs by dropping affected products.

According to Jonathan Weber, a private third-party seller focused on outdoor equipment and office supplies, the new tariffs make many private-label products on the lower end of the 30-to-40% profit spectrum not worth sourcing anymore.

“I have already suspended orders of a new product that will be hit by the tariffs until this blows over—the Chinese manufacturers understand,” he said. “My existing products, [which] I have to reorder to stay in stock, are a different story.”

That includes one “small, popular product” manufactured in China that he sells “at very narrow margins.”

“I have a shipment of 5,000 units en route, so this shipment is exempt from the tariffs,” Weber added. “However, if the tariffs are still in force by the time I have to reorder, I will have to raise my prices by 25%—or some number close to that—to avoid taking a loss.”

Khazi agreed low-profit third-party sellers with affected products can raise prices to pass on the incremental cost to consumers.

“Most products will likely experience a mild increase in prices if they are a tariff category,” added Humphrey Ho, managing director of Hylink Group, an agency that helps brands figure out China’s digital landscape. “We’re already seeing this with things such as metal-, steel-, aluminum-based products across the board in terms of average sale price if they come from China. However, we don’t think that it will hurt the competitiveness of seller products.”

However, Deniero Bartolini, a third-party seller with kitchenware, baby products and mobile accessories, said even a small increase in the price of consumer goods will result in far fewer sales. Instead, he plans to add an additional product, which he said will offset rising costs.

Weber isn’t as optimistic.

“It seriously upends our business model, and if it continues for long enough, [it] could put some of us out of business,” he added. “The only consolation is that everyone [who] imports from China is in the same situation, so it will be easier to raise prices to cover the costs of tariffs.”

Last year, manufacturers in China produced more goods for Americans than any other nation, but potential tariffs on electronics and high-value items in particular could shake up the manufacturing landscape for those sectors.

“Similarly priced Korean or Japanese [counterparts] will now be more competitive due to country-of-manufacturer biases amongst consumers and also present a challenge for the manufacturers to increase quality or sell products of higher quality at a [lower] price,” he added. “Over time, there might simply be the effect where low-value items are produced in neighboring countries, or even Taiwan, given the quality of manufacturing can increase and tariffs are not added.”

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