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24 Feb What the New U.S./China Tariff Deal Means for Small Businesses

The recent U.S./China trade agreement and the disputes that led to it are often discussed in big picture terms. But understanding tariffs’ effects on small businesses is crucial for millions of companies across the country. Let’s look more closely at the impacts of this latest tariff deal on small businesses.

What Led to the Tariff Dispute with China?

President Trump wants to encourage more domestic economic activity by moving away from broad free trade agreements and instead creating deals with individual countries. Tariffs can play a key role in encouraging domestic purchasing by making costs for U.S.-made products more appealing.

A decision to place tariffs on Chinese imports led to both countries going back and forth since early 2018, adding more categories to the tariff lists. This led to complex negotiations and, eventually, Phase 1 of the new tariff deal, which came into effect February 14. It includes a commitment from the U.S. to reduce or remove some, but not all, current tariffs on Chinese goods, as NPR pointed out. The federal government will also stop a plan to impose scheduled tariffs on another $160 billion of Chinese goods. This is the first stage of a multi-part deal that will continue to reduce tariffs over time, as long as the U.S. and China continue to cooperate with each other.

For its part, China will increase purchasing of various U.S. goods. Purchasing fell in the wake of the trade war that began in 2018. China will also alter its approach to working with U.S. companies in terms of mandated sharing of technology and protecting intellectual property

Tariffs’ Effects on Small Businesses: How They Were and Are Impacted by the Dispute

The tariff situation increased costs for some small businesses in three ways:

1. Made parts more expensive. Businesses that bought components from China subjected to the new tariffs faced higher costs. In some cases, businesses couldn’t source similar parts  domestically.
2. Made finished products more expensive. Companies that purchased ready-to-sell inventory from China had to attempt to find providers of similar goods in the U.S. or pay higher fees.
3. Reduced purchasing by China. Enterprises that sold goods to China faced increased tariffs and lowered appetite for purchasing from the U.S.

With the first part of the new trade agreement in place, some businesses will see partial or full relief from these effects in areas where tariffs were reduced or eliminated entirely. One example is China’s decision to end tariffs on $75 billion worth of goods including soybeans, pork, and auto parts, as Business News Daily explained. Companies in these industries will enjoy lower costs once the tariffs officially end. China’s commitment to purchase an additional $200 billion in U.S. goods will also create more favorable conditions for a variety of businesses.

Other companies won’t be as lucky in the short term. The U.S. will continue to tax $250 billion in Chinese goods at 25%. Businesses that import parts or finished products will have to contend with increased costs in the short term, at least. Additional phases of the deal between the two countries will offer more relief. However, those agreements are far from complete and require both sides to abide by the rules set in Phase 1.

Small Business Sentiment on the Effect of Tariffs

The National Retail Federation (NRF), which represents both small and large businesses, welcomed the Phase 1 deal but believes all tariffs that came from the dispute eventually need to be removed. “We are glad to see the Phase One deal signed, and resolution of Phase Two can’t come soon enough,” said Matthew Shay, president and CEO of the NRF.

The sentiment shared by the NRF about ending the tariffs imposed in the last few years is relatively common – but by no means universal – across the country’s small business landscape. It seems owners remain divided on the effects of tariffs on their business. We recently conducted our own survey of 560 small business owners to better understand the effects of tariffs and other recent economic factors. When asked about how the ongoing U.S./China tariff situation would affect their business operating costs, 66% of owners said it would have no effect. Another 28% indicated that they expected their business operating costs to increase. And only 6% said they anticipated their operating costs to go down in 2020.

Small Business Loans Support Operational Change

Phase 1 is a major step forward in calming the trade war between China and the U.S. However, there is still plenty of ground to cover.

Tariffs’ effects on small businesses mean companies need to be flexible and adapt their strategies as needed. This can mean many things, including finding different suppliers and harnessing technology to shift purchasing strategies. Companies that benefit from tariffs ending may still be in a sensitive financial position after dealing with increased costs and reduced purchasing from a major trade partner. In any case, a small business loan from an alternative lender like QuickBridge can provide the financial support needed to keep moving forward. Our fast and secure lending process helps ensure your company can access funding when it’s needed most. To learn more, get in touch with us today.

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