← The My Wife Quit Her Job Podcast With Steve Chou
The My Wife Quit Her Job Podcast With Steve Chou
570: Trump’s Tariffs Are Coming: What Amazon FBA Sellers Must Do To Survive
00:13:24
Today, I’m breaking down why President Trump introduced tariffs and what they mean for trade with countries like China. - We’ll look at how these tariffs affect American consumers, businesses, and global trade. Plus,
Loading summary
Transcript5 lines
- [00:00]
Steve Chou
Welcome back to the podcast, the show where I cover all of the latest strategies and current events related to e commerce and online business. Today I'm breaking down why President Trump introduced tariffs and what they mean for trade with countries like China. We'll look at how these tariffs affect American consumers, businesses and global trade. Plus I'll cover the bigger economic picture and the debates surrounding this policy. But before we begin, I wanted to let you know that tickets are now on sale For Seller Summit 2025 over at sellers summit.com the Seller Summit is the conference that I hold every year that specifically targets e commerce entrepreneurs selling physical products online. Unlike other events that focus on inspirational stories and high level advice, mine is a curriculum based conference where you will leave with practical and actionable strategies specifically for an e commerce business. Every speaker I invite is deep in the trenches of their e commerce business entrepreneurs who are importing large quantities of physical goods and not some high level guys who are overseeing their companies at 50,000ft. I personally hate large events, so the Seller's Summit is always small and intimate. Every year we cut off ticket sales at around 200 people, so tickets sell out fast and we've sold out every single year for the past eight years. If you are an e commerce entrepreneur making more than $250,000 or $1 million per year, we also offer an exclusive mastermind experience with other top sellers. The Seller Summit is going to be held in Fort Lauderdale, Florida from May 6th to May 8th. Right now, this is the cheapest the tickets will ever be, so head on over to sellersummit.com and grab your ticket. Now onto the show. Welcome to the My Wife Quit Her Job podcast. In this episode, I'm taking a closer look at President Trump's tariffs, why they were put in place, and how they're shaking up trade with countries like China.
- [01:56]
Co-host or Guest
I'll also explore what this means for.
- [01:58]
Steve Chou
E commerce sellers and dive into the bigger economic impact and the controversies around it.
- [02:03]
Co-host or Guest
Let's start with the policies that Donald Trump has outlined for his second term as president. Trump has said that he will impose a 10% global tariff on every product, no matter where it's coming from, and a whopping 60% tariff on anything coming from China. Now, a 60% tariff sounds pretty extreme and consider this. Over 70% of the products sold by wholesalers and retailers on Amazon.com today are manufactured in China. Now, you might assume that a 60% tariff would push Amazon FBA sellers to raise their prices in the US by an equivalent 60% to cover the costs. However, it's not that simple. Fortunately, we can look back at Trump's previous administration for insights into how such policies might play out. Now, for starters, Michael Feroli, JP Morgan's chief US economist, suggests that the likelihood of a 10% across the board tariff in 2025 is relatively low, let alone a blanket 60% tariff on all Chinese products. It's probably not going to happen. Second of all, Michael Feroli also stated that a 60% tariff on China could raise the price level only by a bit over 1%, assuming tariffs are fully passed on through to consumers. And in practice, the effect could be even smaller if higher tariffs are absorbed into business margins or if there's a substitution away from China towards other suppliers. Now, if you believe Michael Feroli, a 1% increase in prices doesn't sound like much at all. Now, personally, I think the actual price hike will exceed 1%. But let me explain why I think Michael's estimate is reasonably accurate. Based on my own experiences with the last round of Trump's tariffs, I've been selling on Amazon since 2014 and my own online store since 2007 over@bumblebeelinns.com and even though we source from Switzerland, the US, Italy, Germany, India, in addition to China, most of our products do in fact come from China. Now, during Trump's previous administration, he initially promised a sweeping 45% global tariff on Chinese goods. But that's not how things played out. Instead, the tariffs were implemented in stages, ranging from 7.5% to 25%, depending on the product category. For example, many of our products were subject to only the 7.5% tariff. So while Trump publicly announced a global 45% tariff on all Chinese products, the reality was far more nuanced. There were numerous exemptions and many items fell into the lower 7.5% tranche, showing that the actual impact varied significantly by product. I believe that even though Trump has publicly stated he would impose a global 60% tariff on all Chinese products, it is unlikely to actually play out that way. Let's face it, when you're campaigning for president, you can't stand in front of the public and announce a plan for a series of small targeted tariffs. A bold declaration like a 60% across the board tariff makes for a stronger, more attention grabbing stance that even if you're not a fan of Trump, he has some sharp advisors on his team, including figures like Elon Musk and Vivek Ramaswamy, to guide him. It makes zero logical sense to impose tariffs on products that the US doesn't even manufacture. Instead, it's more likely that the highest tariffs will target industries where the US Is actively working to boost domestic production, such as automotive, semiconductors and electronics. For everyday consumer goods and staples, a sweeping 60% tariff seems far less likely. Now, if history is any guide, the price impact of tariffs likely won't be as significant as you might expect. Michael Feroli predicted only a 1% price hike, which isn't a huge deal. But to throw some real numbers into the mix, let me share a hypothetical example based on my own experience selling online during the last Trump administration. During Trump's last presidency, we barely raised prices at all in our online store, and here's why. Now, in a typical retail environment, products are marked up around 4x. So if we source a product for a buck, we sell it for $4. Now, let's assume Trump imposes a 60% tariff as proposed. That would bump the product cost to a buck 60, meaning we'd sell it for $6.40, right? Not quite. For starters, there's always a lag before price increases hit the consumer. When tariffs are implemented, it can take months for existing inventory to sell through and and price changes tend to roll out in waves. Now, on a competitive platform like Amazon, pricing is critical to maintaining rankings and sales. There's very little price elasticity on Amazon, as consumers are highly cost sensitive. Even a small price increase like 60 cents could drop your listing from the top search result to the 10th position. This is why sellers constantly monitor competitor prices to stay competitive. The pressure to maintain rankings often outweighs the immediate impact of tariffs, leading sellers to absorb part of the increased costs instead of passing them entirely to customers. Now back to the example. If you're a seller and you notice that none of your competitors have raised their prices yet, you're far more likely to absorb the cost yourself, at least initially. Instead of making a $3 profit, you might settle for $2.40. And percentage wise, that's like offering a 15% discount, which isn't a massive hit. And that's without factoring Trump's extremely business friendly tax policies. During his last administration, the corporate tax rate dropped from 35% to just 21%, which had a noticeable impact on small businesses like mine. Despite the tariffs, we ended up making much more profit than ever before. This time, Trump is proposing an even lower corporate tax rate, potentially reducing it from 21% to 20% or even 15%. For businesses, that would be a game changer. The tax savings will help offset the impact of even a 60% tariff that, though of course this ultimately depends on your profit margins. By the way, Trump's business tax friendly policies are one of the biggest reasons why you should start your own business right away. As an employee, you're taxed at the highest rates with very few deductions. If you're interested in learning how to start your own profitable online store, I've created a free six day mini course just for you. It's packed with actionable tips and I guarantee you'll walk away with valuable insights. Sign up below. It's completely free. Now let's say you don't want to pay the high tariffs on Chinese goods. One alternative is to source products from other countries, such as Mexico, India or Southeast Asia. While that sounds promising in theory, in practice it's incredibly challenging. At least right now. First, there's the issue of cost. China is significantly cheaper than many other countries, including the U.S. and Mexico. Now, in my previous video I mentioned that labor costs in China are about four times lower than the U.S. even with a 60% tariff, it's often still cheaper to manufacture in China than elsewhere. Another major hurdle is China's unmatched vertical integration. China has suppliers for virtually every component needed to manufacture complex products, all within close proximity. Most products aren't just single piece items. They're composed of many components that need to be sourced, assembled and integrated. Take the iPhone for example. It's not as simple as deciding to manufacture it in the us you'd still need chips from TSMC in Taiwan, RAM from Korea, and various PCB components from China. It's a supply chain that is deeply interwoven and replicating that infrastructure elsewhere is not easy. Even if you find a supplier in Mexico or India, there's a good chance that they're still sourcing many components from China. We learned this the hard way when we sourced intricate lace handkerchiefs from Italy, only to find out later that the materials originally came from China. We were essentially paying a markup for the same Chinese goods. Now, in the long term, if demand increases, other developing countries may begin to build the necessary infrastructure to compete with China. However, that's not going to happen overnight, or even within a single Trump administration. It's going to take years, likely decades, for countries like Mexico and India to catch up to China's manufacturing ecosystem. Now, from running my business, I've also discovered that many Chinese owned factories have already set up operations in Mexico, where tariffs are currently non existent. Chinese manufacturers are always finding new ways to bypass tariffs altogether. I've been selling online and sourcing from China for 17 years, and I don't expect tariffs to have as dramatic as an impact as the media suggests. Lower income tax rates will likely offset much of the tariff increases, and there will undoubtedly be loopholes such as Chinese suppliers shifting production to countries like Vietnam or Mexico. As a small business owner, you also have the flexibility to adjust your prices to account for the tariff costs as well. It's important to note that prices won't increase by 60% as there's not a direct one to one correlation between tariffs and selling prices due to the retail markups. Even if you pass the entire 60% tariff onto the consumer, the final price would only increase by about 15%, and for most products that is a manageable increase. And remember, these tariffs affect everyone across the board, not just your small business. Now, as an Amazon FBA seller, what should you do right now if you're worried about the tariffs? You should place your orders now as quickly as possible before the Trump administration takes effect in late January and get your products in as soon as possible. Most likely other e commerce entrepreneurs are thinking the same thing, which means the cost of freight will likely be higher in the near term, but in the long run everything will likely even out. There will be inflation, but not nearly as high as the doomsday media is making it out to be. Bottom line, the tariffs give the US Some negotiation leverage. We've allowed countries like China to have the advantage for a long time now, and I believe these tariffs will help level the playing field. Meanwhile, Amazon is already under heavy scrutiny for its monopolistic practices under the Biden administration. The FTC opened up an investigation on Amazon and ultimately sued them in 2023 for illegally maintaining its monopoly. We all know that Jeff Bezos and Trump don't exactly get along, and Trump has been very vocal about how the Washington Post unfairly targets him. Trump has also gone on record many times as describing Amazon as having a monopoly, and it's highly likely that the FTC investigation into Amazon will continue forward as planned. As a result, Amazon will likely be on its best behavior going forward. They already announced that there would be no fee changes for 2025, which which is finally some great news for sellers. Overall, I see the Trump presidency as being a net neutral for Amazon, FBA and other e commerce businesses. Now that you understand the effects on Amazon FBA sellers, make sure you watch this video here for a broader overview of the US Trade war and the role of tariffs on the economy. Hope you enjoyed this episode. If you're worried about the effects of Trump tariffs on your business.
- [12:45]
Steve Chou
I'm doing a three part series on this in the coming weeks. For more information and resources, go to my wife quithherjob.com Episode 570 Once again, tickets to the Seller Summit 2025 are now on sale over at sellers summit.com if you want to hang out in person in a small intimate setting, develop real relationships with like minded entrepreneurs and learn a ton, then come to my event. Go to sellersummit.com and if you're interested in starting your own e commerce store, head on over to mywifequitherjob.com and sign up for my free 6 day mini course. Just type in your email and I'll send the course right away via email.