Can the China trade war impact your business?
Whether your business depends on materials directly from China or not, the longer this blinking trade war with China drags on, the more likely you are to feel the impacts. Some businesses have shown the signs of strain and American farms are collapsing under the financial impact of the trade war.
Yes, the same people who voted for the person responsible for the trade war have suffered the most. In the Upper Midwest, 80 farms have filed for bankruptcy.
Want to know more about the China trade war and how you can protect your business? Read on to find out.
What is the China Trade War?
Long before Donald Trump became President of the United States, he openly complained about China. He said that climate change was a hoax by the Chinese government. That would force the U.S. to make regulations to be less competitive.
He also complained that China’s trade practices were unfair to American businesses. When he took office, the U.S. government started to investigate China’s trade practices.
Shortly afterward, the U.S. imposed tariffs on Chinese goods entering the U.S. worth billions of dollars. The Chinese government responded by imposing tariffs.
The back and forth rounds of tariff increases continued and the U.S. now imposes tariffs on goods totaling over $250 billion.
The theory behind this coincides with Trump’s America First policy. The rationale is that if Chinese goods are more expensive, American products will be priced more competitively and people will buy American products.
It doesn’t quite work like that. A lot of the American made goods get their raw materials from China. As a result of these tariffs, there is no competitive advantage for American made goods since raw materials are more expensive.
Any trade war between countries is complex. One between two major economic powerhouses is incredibly complex. Economic tensions between these two countries go back decades when China first opened its doors to U.S. businesses.
To fully understand how the trade war with China came about and how it impacts manufacturers, read this to learn more.
What Small Business Owners Can Do to Minimize the Impact of the Trade War
Fortunately, all is not lost for small businesses. While many businesses will feel some sort of pain from the China trade war, there are some measures that you can take to protect your business.
Here’s how to start minimizing the impact of tariffs on your business.
Make Your Priority Purchases Before Tariffs Increase Again
The trade war with China is a tit-for-tat disagreement. When one actor chooses to raise tariffs, the other responds by also raising tariffs. It’s volatile and no one seems to know what’s next in the chaos.
That’s why if there are major purchases your business usually makes, such as steel for manufactured goods, but them now in bulk before the prices go up again. That may require that you need to get a loan to make a purchase.
If you do need to get a loan, you’ll have to weight the increase in tariffs against the increase in interest rates. One will certainly cost your business more in the long run. You have to decide what that is.
What Can You Realistically Absorb?
Every tariff increase will result in a reduction in profits. If your business operates on a relatively high-profit margin, you can afford to absorb some increase in production costs.
On the other hand, if your business is a high volume/low margin business, you won’t be able to afford a significant jump in costs. Will you pass those cost increases to your customers? How will that impact sales?
The alternatives are to pass on those costs onto your customers. The first is that you can cut costs elsewhere in your business.
For example, you could cut advertising costs. The other option is to invest in that will help you increase the volume of your business. More sales will allow your business to be able to absorb the increase in production costs.
Examine Your Supplier Agreements
What do your look like? The odds are good that your suppliers are impacted by the China trade war, too. There’s no reason to believe that they won’t pass the costs of doing business on to your company at some point.
They may try to absorb as much as they can, but just like your business, they do have a breaking point. You can stall the inevitable by locking in your prices with your suppliers now.
By locking in your supplier rates now, you avoid any costly price increases that are passed down the supply chain.
Work with Your Customers
Up and down the supply chain, everyone is aware that there are some impacts to businesses from the trade war with China.
The more transparent you are with your customers, the more understanding they’ll be. They may be more willing to accept a price increase. That opens the door to negotiating new terms and you’ll understand how much they can absorb.
That takes the burden of taking all of the pricing pressures off of your business and puts it in a better position to survive the trade war.
Start by contacting your best customers and ask them how they’re coping with the tariffs. This will give you some insight as to how your business can respond and keep them as your best customer.
It further builds the relationship, and it gives your business a way to work with them and maintain your profitability.
When Will the China Trade War End?
The China Trade War has had a significant impact on large and small businesses alike. It doesn’t matter what side of the aisle you’re on, everyone can agree that the longer it drags on, the more damage will occur.
It’s a scary time for small businesses, and it’s a challenging time to be an entrepreneur. Despite the uncertainty, it is possible to have a thriving business.
You do need to take the appropriate actions now. The longer you wait, the more likely it is that you’re going to face yet another tariff increase.
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