For a little over a year, David and I have been working on an e-commerce project which has nothing to do with real estate. You might be wondering, “Why?” My November 2017 post answers the question.
During the Obama administration, I wrote about a business model that was killed due to the Dodd-Frank Act of 2010. I was unhappy about it because of the time and money wasted for our efforts. Given his political affiliation, however, I was not surprised. And I moved on. I had no choice.
Eight years later, never did I expect that the Trump administration, too, would jeopardize our latest business model, e-commerce. Who would have thought?
Just to qualify, I appreciate what President Trump is trying to accomplish – especially with respect to the People’s Republic of China. Among other strategic issues, for years, most of us have known that the PRC has been stealing the intellectual property of American businesses. Yet no prior U.S. President has ever addressed the issue as forcefully as President Trump. Tariffs can be used as a negotiation tool against another country, such as the PRC, to help us (the U.S.A.) achieve intended results. President’s intent is to help correct the other country’s misbehavior by punishing them through higher tariffs. Part of me believes, therefore, that he is doing the right thing for the sake of protecting the security and long-term viability of our country. This, of course, is a macro-level issue.
Then there is a micro-level issue. Good intentions, especially those by the government, are almost always accompanied by unintended consequences. In this case, what is intended to punish the other country also ends up punishing American small-business owners in the process. Let me explain.
With our first e-commerce business, we were starting to import goods from a Chinese manufacturer. Before President Trump’s tough talk with the PRC began, the existing tariff rate for our product was 7%. For reasons beyond our control, the shipment of our product was delayed by two months. On September 24, 2018, the tariff rate was raised by 10 percentage points to 17%. Guess when our shipment finally arrived and cleared customs in the U.S.A. Answer: October 30, 2018. Ouch!
On December 2, 2018, the day after the G-20 Summit in Buenos Aires, Argentina, the U.S.A. and PRC announced a 90-day truce. The outcome of the trade negotiations remains unpredictable, especially with the high-profile arrest of Ms. Meng Wanzhou, Huawei Technologies Co. CFO, in Vancouver, British Columbia at the behest of the U.S.A. on December 9, 2018. She is the daughter of the founder of Huawei, Ren Zhengfei. She is criminally charged with multiple offenses, including money laundering, espionage, and selling telecommunications equipment to Iran in violation of U.S. sanctions.
The new tariff rate for our product was scheduled to go into effect on January 1, 2019 by an additional 25 percentage points (from the original 7%) to 32%.* While the short truce put on hold the additional tariff-rate hike, for the time being, it gives American businesses no choice but to plan for the worst.
Because of the tariff-related cost hike, the Chinese manufacturer that we hired – an excellent one that survived our rigorous selection criteria – will not be receiving re-orders from us in the foreseeable future. This, of course, is one of the effects President Trump wanted to have on the PRC – to make his point across. From where I stand, however, it seems rather harsh to lump together the sector of the Chinese industry that has nothing to do with its government’s egregious policies to steal intellectual property and/or force technology transfer from the U.S.A.
As owners of a small start-up business, we are not able to absorb the potential, additional tariff hike or have the luxury of simply wishing for the best outcome for us while the truce remains in place. We are having to look for an alternative to deal with the situation. Mr. President, we – the small-business owners – are hurting here!
Because we cannot remain in business unless we can make money, we have no choice but to figure out alternative sources for our product either from countries other than the PRC or domestically.
Before our initial product finally launched late November, we already began looking into sourcing a similar product in the U.S.A. This, too, is exactly the effect President Trump wants to see. So far, however, we have had no luck in finding a domestic supplier with whom we can be mutually profitable. Before giving up on sourcing domestically, we are looking into other potential products as well.
Never a dull moment in working toward my ultimate goal to replace reliance on pension and Social Security income through our business endeavor.
Happy investing!
*Update: As noted above, the expected tariff-rate increase of 25 percentage points (from the original 7%) to 32% for our product was scheduled to go into effect on January 1, 2019. The day came and went with no change – until September 1, 2019, when it was increased by 15 percentage points to 22%.
