Thursday, September 5, 2019

Small Businesses’ Faith In Economy Hits Low on Tariff Uncertainty




It is becoming expensive to import from china, especially for small businesses.

The U.S economy is becoming harder to penetrate with the higher tariffs. As a result, for the first time since 2012, economic confidence has decreased to a new low. Economic confidence is a measurement which indicates how likely businesses are pursuing trade. Also, economic confidence has propagated companies to delay recruiting and make investments.

These higher tariffs are expected to cost American small businesses an estimate between $1 million and $20 million dollars, according to Vistage Worldwide polls. For example, an auto maker terminated an order worth $2 million for parts amid the heated trade tensions. In the case of Wiscon Products Inc., they have opportunistically changed their strategy to an administering aggressive marketing to recoup from their 40% lost revenue. This strategy is expected to diversify their customer base, but at the same time they are holding off from purchasing new machines.

Despite the economic harms, the data gathered displays that small businesses are actually in favor for what seems like a shift to a protectionist economy. Small businesses believe that they are financially capable of surviving the recently implemented policies.

The main concern that both sides of the spectrum have is whether these tariffs will be applied and when, the extensiveness of it, and how long they will be in place. The uncertainty is making it difficult for businesses to plan ahead, as a result, hurting their businesses. The founder of White + Warren, Susan White Morrissey commented on the undefined policy saying “It’s overwhelming. It’s exhausting. It’s demoralizing,” thus clearly displaying the weight of the issue on her business. For example, the tariffs applied over the summer have cut the profit on the ribbed cashmere hats that were made in China in half. 

The trade policies have led to concern over the future of the US economy. However, President Trump responded that it is actually “badly run and weak companies” that are to blame. Meanwhile, he is also pushing the Federal Reserve to reduce interest rates.

Some companies are seeking domestic suppliers but are struggling with the higher costs that they are being met with.

One of the companies affected is Argosy Cruises, a tour-boat operator in Seattle. This company is delaying the replacement of two of their vessels as the price went from $8.5 two years ago up to $9.5 million. Another one of their main concern, as a service-based company, is their uncertainty on whether they will continue to receive Chinese tourists as the trade tension escalates. This has made signing long-term contracts very risky as the issue remains unstable.

However, larger companies however will be able to topple the tariff issue by making bulk purchases and buying ahead, a privilege smaller companies do not have because of their smaller-sized funds.

As mentioned above, some companies are in favour of the tariffs, but the quick shift in trade policy has not allowed for some companies to prepare for its sudden implementation. For example, the higher tariffs enforced during the spring was brought to Jay Albere’s attention days before a shipment was due to arrive. Albere, Chief Executive Officer at LumiGrow, had to say “Just give me the ability to plan for it and make a smart business decision. The lack of certainty is really, really hard.”

Remodeez, a 3 decade old company, finds the change in supplier an impractical move because other companies would not have the facilities or knowledge to produce their product. Additionally, they have in fact already made heavy investments in China making it a waste of resources.The enforcement of tariffs will be especially detrimental to the company as they, not only sell their deodorizers at $9.99, but use a specific psychological strategy that does not allow them to sell at double digits. Subsequently, they plan on absorbing the costs.

In conclusion, tariffs are tax imposed by the government on goods entering its borders. Tariffs can be used as revenue-generating taxes or to discourage the importation of goods.  The consequences of the protectionist policy by enforcing higher tariffs are as follows:
     
     Increase: Inflationary pressures, government control, and political considerations in economic matters.
     Weaken: Balance-of-payments positions, Supply-and-demand patterns, and international relations.
     Restrict: Manufacturers’ supply sources, choices available to consumers, and competition.

Opportunism can be an option, but it is a sword with two edges, the costs can be less but again at the same time the consistency in quality may be affected.



Cateora, P., Gilly, M., & Graham, J. (2013). International Marketing. New York, NY: McGraw-Hill Irwin



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