E-Commerce and Tariffs: How to Respond to Changes Without Having a Second Boston Tea Party

Posted on October 19, 2018

Let’s take a spin in the time machine. It’s 1773, and citizens in America choose to import goods from other countries rather than having to pay for expensive taxes on “homegrown” goods. The powers that be are angered by this, so they place higher tariffs on foreign goods, hoping to undercut the prices. The people don’t like this, because they want the choice on products, so they dress up like Native Americans, storm the homegrown ships, seize the homegrown British tea, and dump what would today be worth $1 million into Boston Harbor. It’s your standard Boston Tea Party. But if you consider the context preceding dumping tea in the harbor, times haven’t changed much.

Businesses — especially e-commerce businesses — are importing goods from foreign manufacturers at a record rate. Under the Trump administration though, you’ve gotta buy American, so they’ve placed tariffs on imports from these foreign countries — namely China. These tariffs are the brainchild of Peter Navarro, a man who could only suggest two people to The New Yorker as economists who share his position on China. One said that Navarro had “a severe position…” while wondering, “where’s his proof?” and the other said, “I do not hold an economics degree.” So, what do you do when the universally panned actions of a president who makes “the best deals, believe me” and his “trade guy” affect your business?

According to Nathan Resnick of Sourcify, the best thing you can do is to hold the line. “For most e-commerce companies and retailers, we don’t need to be scared just yet. Most of these tariffs are in industries we don’t sell in. With that said, this global trade war is definitely something to keep in mind and should make you consider transitioning your supply chain outside of China.” Simply put: DON’T PANIC.

If you’ve been a viewer on any of the Engine Q&A clips, you know that we don’t view dropshipping as a great model. These tariffs only confirm that skepticism. But maybe you’ve had success with your dropshipping model and stuck with it despite our protestations. As enjoyable as it might be, it would not do to say, “We told you so.” You need real solutions. The good news is that the real solution is being implemented by companies all over the world.

In an industry like e-commerce, where one change of a Facebook algorithm can cause the need for huge audibles, it pays to be aware of what’s going on in the global economy as a whole. Resnick points out “most of the goods e-commerce stores and retailers sell can be produced even more effectively in other parts of Asia like Vietnam, India, or the Philippines. Though the infrastructure in China is very strong, if you look at labor rates in some of these countries, labor is more affordable outside China nowadays.”

Some big players have already begun to shift outside of China, as “companies like Michael Kors and Tapestry have shifted or are in the process of shifting sourcing to Vietnam and other countries in Asia-Pacific.” CEO of Crate & Barrel Neela Montgomery believes that these tariffs may simply lead to a relocation of supply chains, stating in an interview with Bloomberg “in reality, [supply chain will] move to another Asian market, or potentially Europe.” Think of relocating your supply chain not as an existential crisis, but as an opportunity to pivot. Expand your e-commerce empire to Vietnam, Thailand, Bangladesh, or even the United States.

The point is to always be ready to call an audible. Conduct a mental audit of your business every week and find your weak spots. What’s the worst part of your set up? Is it a supply chain? Fulfillment? Customer service? By realizing your weak spots, you can adjust those into points of strength before things that are out of your control even begin to affect them. It may be a worn-out phrase, but it rings true: Control what you can control. If the president who can “name 10 different forms of trade” decides to place ill-advised tariffs on $500 billion worth of goods, that’s out of your hands. You do, however, have the ability to be prepared enough so as not to be caught with your pants down. Because barring the people rising up and dumping knockoff Transformers toys into the Pacific Ocean, the tariffs are here to stay. By staying 10 steps ahead through constant self-assessment, you can have your personal Boston Tea Party.