Supply Chain News: China Slashes U.S. Tariffs in Half

Tariff reductions go into effect on February 14, 2020. Read on for key details.

As of late, the United States and China have been involved in trade-related negotiations, often with conversations that have been quite tense. But a breakthrough has occurred that should offer some financial relief to businesses in the United States who are shipping products to China, as well as those in China who are importing the goods. This deal will go into effect on February 14, 2020.

More specifically, China has agreed to reduce tariffs by half on $75 billion worth of goods that are exported by the United States into China. Products that would have had tariffs of 10% will be reduced to 5%; ones that were going to be at 5% will be cut to 2.5%. Meanwhile, tariffs on Chinese imports will be reduced from 15% to 7.5% on approximately $120 billion of goods that are coming into the United States, effective that same day.

As part of this deal, China agreed to increase what it is buying from the United States, an additional $200 billion worth over the next two years. This will include $12.5 billion in cereals, dairy products, soybeans, meat, seafood, and cotton. 

Here, you’ll find a high-level overview, with the reality on the ground being somewhat less clear-cut. For example, many agricultural products grown in the United States and shipped to China already had tariffs from previous negotiation rounds imposed upon them. Previous tariffs will remain at the same rate, which means that, on many products, they aren’t really cut in half for United States exporters. 

An example of this provided by Supply Chain Dive focuses on soybeans. Overall, the soybean tariff will really fall from 30% to 27.5%. On beef, pork, and chicken, the aggregate will drop from 35% to 30%.

Who Pays the Tariff?

There has been some confusion over this question. In general, the buyer of the goods being imported pays the tariff. We say “in general” because buyers and sellers can always agree to have the seller pay the tax. For that to happen, though, both parties would need to agree to this type of arrangement up front.

Countries often impose tariffs to protect themselves from foreign countries importing cheaper goods that hurt the sales of domestic products. Overall, tariffs cause the cost of an imported good to go up, meaning that consumers and businesses will likely need to pay more for those imported products. 

What Does This Trade Deal Mean For Your Small Business?

Well, as with most complex financial agreements, it depends upon whom you ask. An analysis by Air & Surface Logistics, for example, suggests that farmers and U.S. consumers will benefit from this agreement, along with banks and tech companies. 

They suggest that small businesses in the United States, though, may not see much relief—at least not in this agreement, which is being considered phase one of an ongoing negotiations process. Having said that, if this trade agreement can successfully ratchet down the tensions between the United States and China—and all aspects of the agreement are fulfilled upon—then it’s possible that there can be an indirect benefit to consumers and businesses alike across the U.S. economy.

Business News Daily, meanwhile, points out how tariffs have significant impacts on the economy, both direct and indirect—which means that entrepreneurs will need to adjust. They quote the executive director of the Center for Urban Entrepreneurship and Economic Development of Rutgers Business School as saying the following: “When the elephants dance, everybody gets shaken up . . . In this instance, [small businesses are often] dealing with the supply chain asking for higher costs that cannot be quickly passed on to customers. It means more time thinking about pricing, renegotiating and managing cash flow.”

Helpful things you can do, the article shares, include paying close attention to your profit margins, especially if you need to buy goods that have increasing prices because of tariff-related issues. Strategically consider whether it makes sense to raise our own prices or to hold steady. If you need to raise them, how much of an increase can your customers tolerate?

Can you manage your inventory more effectively, avoiding unnecessary overages? Conversely, what crucial items that you expect to have price increases can you stockpile?

How else can you manage your cash flow? Brainstorm. Get creative. Reward employees with the best ideas!

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