Small business confidence has significantly dropped to its lowest level since 2017. It’s now below where it was before the new tax cuts. Why? Concerns about trade, and especially concerns about the US–China Trade War.
The effect of Trump’s trade war is starting to take its toll. According to poll sponsored by CNBC|Survey Monkey, there’s been a sharp uptick in the expectation of a negative impact from trade policies. But we didn’t need this poll to bring this to light for us. One import/export client of our Miguel has been experiencing concerns, and his story is a good example of how to navigate these trade concerns.
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Miguel operates an import/export business here in NYC. He does a lot of work with both Mexico and China. Both countries where uncertainty around trade policies have had a negative impact on his growth.
“I export and import goods to both to/and from both Mexico and China. I don’t know what’s going to happen from week to week. It’s causing problems for both my suppliers and customers.”
The index of national factory activity dropped 1.3 points to a reading of 47.8 last month, the lowest level since June 2009, when the recession was ending. A reading below 50 indicates a contraction in the manufacturing sector…September’s reading marked the second straight month that the index broke below the 50 point threshold.
How We Advised Miguel
This is a very challenging environment for anyone in the import/export business. A trade war like the one between the US and China is hard to navigate. So what on Earth can you do? Due to all this uncertainty, any option contains risk. There is no easy solution. One more month of contraction, and the US manufacturing sector will be in a recession – so much for bringing manufacturing jobs back to the US.
Miguel’s business had been growing at a healthy rate, but in the past three months, that growth has slowed. There’s no reason to believe that any sanity will return to the trade policy area any time soon. In the short term, Miguel needed to cut back on some of his expansion plans, and limit his use of overtime. We also suggested looking at other ways to trim expenses.
Build Enough Inventory to Manage the Holidays
While the manufacturing sector seems to be trending towards recession, the consumer sector does not. He, like many others, was diverting his cash from spending to inventory building for the holiday season. It’s risky, as the consumer sector could head that way by Christmas, but better to have enough supply at the pre-tariff rates than have to rush order. Thankfully, Christmas is recession-proof, US–China Trade War-proof, and crime-proof
Explore Other Markets
This is easier said than done. Miguel’s connections are already established in both countries. But we have to be realistic. We decided to spend some money to research other markets unaffected by current trade policy. We began to look at Brazil and other South American markets as potential alternatives to Mexico, and Vietnam and other Southeast Asia countries as alternatives to China. We’ve made some headway, but this is slow and costly.
How the US-China Trade War Trickles Down to Main Street
“That really bright outlook we saw two years ago has waned,” said Molly Day, vice president of public affairs for the National Small Business Association. “We’ve been pretty concerned with threats of tariffs.”
Since Miguel is a distributor, he is like the canary in the coal mine. No one knows what the US–China relationship will result in, or how the trade war will play out. We are also concerned about the effect this will have on smaller retailers, as they are least able to absorb cost shocks. No matter what, it is a precarious time for sure.