2019-09-11

How the US-China trade war is affecting dropshippers

US-China trade war

Most of us in the field of business are quite familiar with the ongoing trade war between two economically giant countries USA and China. This war can bring some serious changes to your business model because as of now there is no hope of de-escalation of this war. Both countries are holding their ground and looking at the current situation, it can be said that there might not be a settlement between these two countries at least for the upcoming 2-3 years.

If you don't know much about this ongoing war, don’t worry we got your back!

US-China Trade war

The US-China trade war is an ongoing economic conflict between the two largest national economies, the USA and China. This conflict was initiated by the President of the United States of America, Donald Trump introducing increased tariff and other import barricades on Chinese products to force China to change the “unfair trade practices” as mentioned by the USA. So far the USA has imposed increased tariffs on more than $360bn worth of Chinese products and to this China has retaliated with imposing a tariff on $110bn worth of US products. After the implementation of these new rules, the difficulty of trade between these two countries has increased. As a result of this conflict, other countries like Mexico, Vietnam, France, South Korea has taken advantage of this economical war to increase their own exports.

trade graph of country exports

How will it affect dropshippers?

As it would be a complete lie if I say that dropshippers won't be affected by this new change. Of course, dropshippers shipping products to the USA will be the most affected in comparison to the rest of the world as there are some major changes being made in this area.

Tariff

Even though most of the products on which tariffs are applied comes under expensive high tech products that involve automobiles, aerospace, and robotics. General household goods are exempt from this list. President Trump is not interested in imposing tariffs on general household goods, instead, he is interested in continuing the import of such goods. In that case, the majority of the dropshippers won’t be affected by the newly imposed tariffs on Chinese goods. President Trump's main objective is to establish a good export market of expensive high tech goods, which can only be possible if Chinese products are stopped from entering such markets.

As long as there is no imposing tariffs on new products, dropshippers shouldn’t be concerned about tariffs eating up their profit margin. 

USA plans to pull out from the Universal Postal Union (UPU) Treaty

Before starting with the pros and cons of this step, it is very important to understand what the Universal Postal Union(UPU) Treaty stands for.

Universal Postal Union was introduced in 1874, an agreement between 192 participating countries to promote international postal delivery. The main objective of this treaty was to make international shipping inexpensive. The rate of shipment was decided according to the countries wealth. Due to which it became very cheap to import goods from china. In 2010 ePacket delivery was introduced under the same treaty between United States Postal Service (USPS) and China’s state mail carrier. It was a win-win situation for Chinese as it became easier for them to export their goods at the cost of USPS, which saw a loss of millions of dollars. ePacket also offered the feature of tracking of the product and also delivery confirmation. Importing Chinese goods was cheaper than buying the domestically manufactured alternative because the shipping cost from China was cheaper than domestic shipping within the USA. Eligibility for ePacket was that the product should be below 4.4 lbs.

USA planning to withdraw from this treaty would be a big damage to the dropshipping business. As dropshipping businesses are mainly dependent on importing cheap products from China, it would become difficult for such businesses to import from China as newly increased shipping costs would eat up a big chunk from their profit margins.

This change would positively help domestic suppliers and manufactures of the USA to grow, as their competition in the market would decrease and would become easier for them to sell their product in the domestic market. Dropshippers need to come up with better gameplay to tackle this issue because if this issue is not addressed properly there is a high chance that your business would fail to compete with the domestic manufacturers.

So it can be said that from the tariffs perspective effects on dropshippers would be minimalistic because majority of the products dropshipped are not included in the new list of increased tariffs, whereas the USA deciding to pull out from UPU treaty would play a vital role in your business because increase in shipping cost can turn the whole business game upside down.