There has been a lot of misunderstanding around tariffs and how they affect business or consumers. Even the people trying to simplify and explain this confuse the subject further by not clearly explaining who pays for it and also putting their personal perspectives instead of talking holistically.The most clear explanation in media by "ecommerce pundits" state that the importer pays for the tariffs. This is true but misses an important distinction. The importer is not necessarily in the country where the product is being imported.In the case of US (as you will see below), majority of the importers are outside of the US. In fact, only 38% of Amazon Sellers are in the US. This number, in reality, is even lower given that a lot of foreign importers have a US domicile address even though they are not supposed to.
The real payer of tariffs is the person importing it who could be in any country BUT given our interviews with major sellers, a lot of the tariff costs will be passed on to the customers.What goes into the Profit and Loss spreadsheet is the COGS, cost of goods sold, which will include tariffs. To keep the profit percentage consistent, the sellers will have to increase the price of the product.
Almost 100% of the sellers we interviewed won't be proactively taking advantage of the tariffs to increase the price of the product. They want to hold out with their existing inventory while hoping their competitors run out first and increase their prices.In one way or other, if not immediately, then gradually the whole cost of tariffs will be passed on to the consumer. There is no other mathematical or logical way.Even for my own brand, the tariffs would be unsustainable and I would be increasing the price gradually.The only way out would be to manufacture within the US which is want the government wants us to. That is a political debate and out of scope of this post (Impossible for our brand since its an Himalayan plant product).
The political aim of this exercise seems to be to kick-start the local manufacturing process. And the aim of this blog post is to NOT talk about it but the effect of tariffs on the most recent online sales data.
A bit of background before I get started and why we are uniquely positioned to provide this data: We are delighted to be conferred as an "Advanced Amazon Partner" for the Amazon ecosystem.This badge is provided to the top 5% of software/Agencies that handle the Amazon ads and the FBA revenues. Roughly put, this involves us processing few billions of USD every year in total GMV for our clients. And since we also analyze their competitors for pricing the products correctly, we have to further dig more than our clients to get accurate sales, revenues, average price and profit for the product.
Given the scale of our AI automation software and the fact that we have no-touch onboarding for our users, at any point we are analyzing almost the whole of Amazon ecommerce system once a month.
I decided to collate all the aggregated, anonymized seller data for the latest month for US and wanted to play around their stats to see the effect of average price of the product IF the tariffs go live.The most interesting data is the chart below for Amazon sellers in the US marketplace. Right away you can see that China is the biggest source of Amazon sellers clocking in slightly higher than 20% more than even US sellers.(Charts are interactive, you can click on them)
These are the total revenues and then an additional column shows the average price of the product for a seller from that country.Some interesting facts from these data:Sellers from these countries sell the most expensive items:
The most surprising entry is Ghana and South Africa. I investigated further and there are only two sellers from Ghana selling in US and the price of their handicrafts is skewing the data as the average price of their handmade items are more than $150 on average
Sellers from these countries sell the cheapest items:
I collected all the data in one spreadsheet, put the average price and added a calculated column with the increase in average price due to the tariffs on that country.I assumed 10% of all countries except few that have exceptionally high tariff rates.This is also with the optimistic projection that sellers in US will have only 10% import tariffs but the ground truth is that almost 80% of US sellers have their source in China which would mean they would also be hit with whatever tariff at that point of time.
Adding up all the data and averaging the approximate increase in price, we can see that the minimum percentage increase in good prices is 9.9%This is a one off increase since we are not increasing the tariff prices every single month.There are few more caveats in this data which has been simplifiedThere are plenty of unknown and unregistered sellers with no country, sellers around China (eg Hong Kong, Singapore, Taiwan, Vietnam etc) all source their goods majorly from China as well
Given all these uncertainties and the effect on inflation and cost of goods, we are confident this turbulent phase of market will eventually settle down.
(Raw data of total sales and avg price by country) https://www.aihello.com/resources/blog/the-effect-of-tariffs-on-amazon-consumers/
