You, along with the majority of American business owners, are wondering how the proclaimed “Trade War” between the U.S. and China will affect your business. Although the dynamics in the market are changing at the speed of light, we’re here to give you some peace of mind by explaining what WON’T change.
Change is a Constant
As cliche as it sounds, it still rings true - change is a constant in life, politics, business and beyond. And when it comes to the trade wars happening between the United States and China, it’s going to keep changing. Headlines are altering by the minute and the contents within the news articles are wavering. What IS true about the tariffs, despite the uncertainty of outcomes, is they ARE going to affect the economy. You have to be proactive.
Strategic planning is an important process for any business looking to enter a new market or sell a new product, but it doesn’t stop there. When potential threats to your company’s well-being arise, you need to act. This way, if the final outcome is not in your favor, you already have an actionable plan prepared to execute.
If the trade war continues, your business may face increased costs for your products. If your sales are significantly impacted by the busy shopping season (back-to-school or holidays), you may see less foot traffic due to consumers having less disposable income after buying these affected but necessary goods. As recently reported in the New York Times, starting October 1st, the current products being imported from China will be taxed an additional 5% (from 25% to 30%).
Small and large companies alike will be burdened with either hoping for the best with the China trade talks or finding a new manufacturer in the United States. If you choose to bring the manufacturing of a non-necessity to the US, you could find a decrease in sales due to the increase in the ultimate price for the consumer and the lack of inherent “need” for your product.
We could go on about the potential outcomes, but it is important for your business to gather the right team, and start outlining potential threats and opportunities that arise with this specific conflict. In times of rapid change, you can never be too prepared.
Large Push Towards China’s Middle Class
Even with the trade talks between China and the US heating up, China remains an emerging market and a powerful one at that. In September 2019 alone, Hong Kong shared the record best day in 10 months and the Chinese yuan gained a two-week high. Although discomfort remains about China’s global sales in response to the trade war, China’s middle class still holds an immense amount of consumer power.
With over 400 million Chinese people classified as the middle class, this group exceeds the entire population of the United States. The untapped spending power of this demographic is enough to start asking yourself, “Does it make sense to expand my business to China?” Of course, we can help you with that question, but for now, we’ll outline some of the existing spending habits of China’s middle class.
The majority of the current spending is coming from China’s upper middle class, who have more disposable income. This group spends its money on a variety of goods and services, but passenger vehicles have experienced the most consecutive growth. According to China Power, “...passenger vehicle sales in China have experienced growth for 26 straight years, with 28.9 million cars being sold in 2017. For reference, US consumers bought 17.5 million cars in 2016 and Brazilians purchased just 2.5 million automobiles.”
In addition to consumer products, the higher incomes in China’s population have offered more opportunities to be connected, both online and through travel. Internet use has skyrocketed since 2017, and the power of technology is only projected to intensify in the group. Traveling is at an all-time high. Annual spending on domestic trips increased by over 275% in the past 5 years, and international trips exceeding 2500%.
Visual Media and E-commerce is the Future
It’s no surprise that with increased internet usage comes increased connectivity. New and groundbreaking social media applications are notoriously nurtured in China and other Asian countries before they take over the United States. One example of that is the Generation Z forward short-form video platform, Tik Tok. Tik Tok, or the Chinese version Douyin, has been downloaded more than one billion times internationally. The Chinese tech company that owns the platform is valued as the world’s most valuable startup.
Weibo and WeChat are two apps that have taken China by storm, but have yet to capture the interest of the US market. Weibo is an entertainment platform that, “encompasses the features of Twitter, Pinterest, Instagram, Reddit, and Youtube.” In short, Weibo began as a microblogging site like Twitter and has skyrocketed in China. Due to more visually-rich opportunities on Weibo, the platform has tremendously exceeded usership over Twitter. Forecasts from eMarketer points to Weibo surpassing 400 million users in China by 2021.
Lastly, WeChat is a tool that offers mini programs and serves as an all-inclusive app store. Businesses who want their app to be on WeChat’s platform must pay a premium to be there. Users can interact and purchase within any “mini-app” without downloading anything additional to their devices. In 2017 alone, WeChat drove $50 billion into the Chinese economy.
We may have just thrown a ton of information your way, however, it is calming to know that with the ever-changing trade war between the US and China, constant variables still remain. Whether you need help identifying a strategy for the potential outcomes of the tariffs, or if you’re interested in learning more about the opportunities available for your business in China, we can help. Contact us via email (firstname.lastname@example.org) or submit a form on our contact page.