The US China trade war was initiated when Donald Trump increased the tariffs by 25% on Chinese imported goods.
What is Tariffs?
Tariffs are taxes that government charges on import products. You can call it import duty or custom fees.
How Increase in Tariffs Affect Trade?
Tariffs increase the prices of imported goods. The increase in the imported good is directly proportional to the rise in the demand for domestic products.
Let say I have a construction company in the USA, and I import steel from China. I get my steel for $100,000 after import duty. If the US government increases the tariffs by 25%, that means I have to pay $125,000.
So, why would I bother to purchase Chinese steel for $125,000 when I get domestic steel for $115,000.
That’s what increase in tariffs do; these hikes might give an advantage to the domestic manufacturer. However, it puts a barrier to international trade.
In the act of retaliation, other countries impose and increases tariffs that majorly affect global trade.
This increase in tariffs has caused Chinese imports in US to drop by $31 billion in 2019.
One of the primary reason for the US rising the tariffs or initiative the trade war with China is an attempt to settle its negative balance of trade – Trade Deficit.
What is a Trade Deficit?
The amount by which country’s import exceeds the company’s export.
According to the US census, the USA imported $3.1 trillion worth of goods and exported $2.5 trillion in means having a trade deficit of $621 billion.
What is alarming here is that China is responsible for 17.3% of US import, which means the US imported $539.5 billion worth of Chinese goods.
In contrast, China is only responsible for just 4.8% of US exports, which means the US only export 120.3 billion worth of goods to China.
Now, here is some math that Patrick Bet David performed in his YouTube channels that defines how China is responsible for 67% US trade deficit.
US import Chinese good worth of –> $539.5 billion
US export goods to China –> 120.3 billion
US total trade deficit –> 621 billion
539.5 – 120.3 = 419.2 billion (amount of US trade deficit caused by trading with China)
419.2/621*100 = 67.5%
To conclude these facts – China is enjoying more profits and making much money in this trade by selling more items in the USA.
I hope the reason of this trade war must be very clear to you now. But, why are we discussing this issue?
Our channel focuses on to provide value to ecommerce entrepreneur and dropshippers. So our only concern here regarding this trade war is – how will the US China trade war will affect global ecommerce industry.
China is the leading supplier for online sellers, and the US is the potential market for online selling. Many online are concern about the increase in the 25% tariffs on imported Chinese good and though that might kill dropshipping, Amazon FBA, and private label selling.
Will US China Trade War Kill Dropshipping, FBA, and Private Label?
Here is my answer. No, the US China trade war will not kill dropshipping.
The main concern right now we have here is that, do we (dropshippers and US-based online seller) have to pay tariffs. No, we will not have to tariffs, here is why
The threshold of these tariffs that are applied to Chinese goods is very high.
In the USA, the threshold for import is $800, which is far beyond the average amount for any customer who orders online.
Therefore, make yourself familiar with the import threshold of every country, as it is significant for your business.
Similar goes for FBA and Private Label seller.
They can use this threshold and order accordingly. If you are selling private label products or sell on Amazon FBA and get the products from China, then make sure to order less than $800 in a single shipment.
Those who are in this business already would quickly get my point that this threshold is enough to continue the online business with ease.
Donald Trump’s intention of initiating this trade war was never to hurt dropshippers, small business owner, or online seller. It was initiated to challenge China in high-tech products and encounters ‘Made in China 2025‘ visions.
Made in China 2025 is the initiative of Chinese Premier Li Keqiang. It is started to make China the world’s ‘factory’ by focusing on High-tech, pharmaceuticals, aerospace, robotics, etc. they are all those fields in which the USA is leading.
So far, dropshipping, small business owner and online sellers do not have any cause to worry about ongoing US trade war.