The future of the international economy seems to be in question as of late, with a growing divide between protectionism in the West and China’s increasing support for global trade. US President Donald Trump’s signature trade policy, ‘America First’, lets US firms call out foreign companies that have economically ‘hurt’ them, triggering the US to apply tariffs to these industries. The legislation has been labeled by some who oppose it as an attempt to satisfy the voter base that elected the American President.
Meanwhile, China increasingly favors globalism as Xi Jinping opens up markets through structural reform. The Financial Times reported that Liu He, Economic Advisor to Xi Jinping says the country has “stood firm against all forms of protectionism.” Furthermore, “we are moving economic globalization forward with concrete actions,” Liu stated at Davos last week.
Trump answered his call by announcing “America first does not mean America Alone.” American economist Phil Levy emphasized that the policy had no chance of bringing manufacturing back to the United States, a promise President Trump is delivering his base. “If you look at the share of the U.S. labor force in manufacturing, it’s been on a fairly steady downward trend starting in the mid-1960s. You can stare at that graph, and you don’t even see a blip in the mid-’90s when NAFTA or the latest, round of global trade talks came online.”
International politics aside, what potential does the America First policy have to affect e-commerce sellers who operate in, or wish to enter, the American market?
The most notable possibilities for e-commerce retailers to consider include a 45% tariff on e-commerce goods from specific countries and a partnership with Alibaba that would make it easier for U.S. SMEs to sell their goods to China.
The 45% tariff is hypothetical at this point, as policies in the Trump White House are in constant flux. Nonetheless, e-commerce retailers have debated the possibility. Supporters say that the tariff would raise costs for consumers both online and in brick-and-mortar stores. The price hike in brick-and-mortar could push stalwart consumers to the internet who don’t already shop there regularly. Others say that foreign sellers on Amazon and eBay will be hurt, despite subsidies on shipping from Hong Kong and China that enable the current cross-border e-commerce market and B2C sales.
Jack Ma and Trump met in early January to discuss the bringing one million jobs to the United States. Ma was vague on how this would happen, but Trump affirmed “Jack and I are going to do some great things together” after the meeting.
Amazon could also face pressure to pay additional taxes. Trump said he would examine the e-commerce giants tax haven, although any increase in taxes would be offset by the reduction in the business tax rate from 35% to 15%.
In a blog post from Arizona based law firm Kelly/Warner about Trump’s potential impact on e-commerce, “In the short term, the worst-case scenario is a 45% tariff on specific goods from specific countries,”But at some point, restraint will probably prevail, because neither the Executive or Legislative bodies want to be responsible for hurling the country into a Great Recession on account of an ill-considered, quickly implemented tariff hike,” the blog states.
If there’s anything to be learned from the first year of the Trump Presidency, it’s that POTUS barks louder than he bites. For now, cross-border e-commerce retailers should put as much stock in Trump’s relationship with Jack Ma as they should in his 45% tariff threat.