Tariffs

The Consequence of Tariffs

 

The Real Cost of Doing Business With China

The trade war between America and China has been kicking into higher and higher gear recently.  In September, Donald Trump announced that he was placing a 10% tariff on $200 billion worth of Chinese goods.  Unfortunately, this includes bags and packaging, and anyone involved with Gift-With-Purchase bags will feel the impact. In January of 2019, the tax will jump to 25%.

No matter where you land on the political spectrum, there is one undeniable fact: the tariffs will increase the cost of goods for consumers, and in the promotional arena, our clients fall in this category.

There is no easy way to reconcile this; when the ruling was issued in September, it increased the cost of orders that were placed as far back as June. But those orders had to stay where they were, price-wise, for the sake of consistency with our clients.

A Dangerous Precedent

We’re in the business of protecting our clients and the only way we were able to make it work in the long run was to not change the price, even if it cost us.

As the cost of doing business with China rises, the knee-jerk reaction is to move to the country with the lowest costs. It seems like a sound business decision for suppliers like us – theoretically, it sounds like it should lead to better prices for our clients. But racing to the bottom dollar can set a dangerous precedent.

We have been moving some of our production out of China for several years now, but each move had to be calculated and methodical. It takes time and money to make visits and construct multiple rounds of samples and run test orders. It was many months before we finally started working in India and Vietnam. Our stock bag business allowed us to be guinea pigs before accepting orders for clients.

But even with the new, high tariffs, we are unlikely to move the remaining parts of our production out of China anytime soon.

Reliability is critical in this part of the business. Trying a cheap factory in Cambodia or Bangladesh will be tempting. But the cost to do the order right the first time, even if it’s from a more expensive factory, will always beat out the cost of remaking errors or having to air ship goods because you ran out of time.

Ask The Right Questions

If there’s any advice that we have for looking outside of China, it’s this: be careful and ask the right questions:

–        How long has the factory been open?

–        How long has your supplier worked with this factory?

–        Has the factory been audited by a third-party inspection company?

–        Do the lead times seem as good or better than China? If so, save yourself some grief and add 30 days to whatever you’re given.

Know Your Options

The bottom line is this: don’t get caught hoping that the tariffs won’t affect you, because they will.  But don’t panic and jump ship either, at least not before you know your options. A reliable supplier will guide you to find the best solutions – but the more you know, the better prepared you will be to make the right decision.

 

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