In the ongoing trade war with China, Amazon in particular faces a tough road ahead.
That’s not to say tariffs will single-handedly bring down the ecommerce giant—CEO Jeff Bezos has done a pretty good job diversifying—but the small businesses responsible for 58% of Amazon’s physical gross merchandise sales in 2018 rely heavily on Chinese manufacturing.
In a series of tweets on August 1, President Donald Trump said the U.S. will add a 10% tariff on $300 billion worth of goods from China starting September 1. The Wall Street Journal reports this tariff will impact “essentially all Chinese imports,” including consumer goods like smartphones, apparel and toys. And per Allen Adamson, co-founder of marketing services firm Metaforce and adjunct associate professor at the NYU Stern School of Business, it will also impact goods like computers that are assembled in the U.S. with parts that come from China.
Unless Trump backs down, first- and third-party merchants alike will start paying higher prices for the goods they import next month. And the odds are fairly good that the additional cost will be passed on to consumers in some way unless those sellers opt to become less profitable or stop offering tariffed goods altogether.
While he’s fairly confident that the overall impact of the new tariff will be limited as long as the economy remains strong and unemployment remains low, Michael Gravier, associate professor at Bryant University, noted that many Amazon purchases are not necessities like food, but rather discretionary—and this could hurt the platform if there’s a downturn in the economy.
But that’s not the only reason Amazon may be sweating the prospect of additional tariffs more than its peers, though the ecommerce platform did not respond to multiple requests for comment.
The Everything Store
Let’s consider where Amazon gets the goods it sells. The platform has more than a million third-party sellers and nearly half a dozen told Adweek that they source the goods they sell from China, and often Alibaba specifically, which connects them to manufacturers in China—and the practice is widespread.
They shared emails and internal correspondence from Alibaba’s messaging center to verify this.
“Today, the majority of our buyers are U.S.-based [small- and medium-sized businesses (SMBs)] who source and buy both customized and finished products through our platform,” said an Alibaba spokesperson. “Many U.S. SMBs source with Alibaba at the beginning of their supply chain before moving into other sales channels like Amazon, eBay, Facebook or even physical shops.”
Deneiro Bartolini, who sells products on Amazon in categories like kitchenware, baby and mobile accessories, estimated there are millions of so-called private label products from third-parties on Amazon at this point, which are “generic AliExpress-type products.”
AliExpress is a consumer-facing marketplace from Alibaba—not to be confused with the b-to-b marketplace Alibaba.com, which sellers use to find manufacturers. Amazon sellers refer to their own goods as “private label,” but they are distinct from Amazon’s own 100-plus private labels, including brands like Stone & Beam, Presto and Mama Bear.
Bartolini said Alibaba is a great place to start sourcing products to sell on Amazon as it has supplier ratings and provides trade assurance.
“There may be a little variety, but it’s all basically the same and this is where everyone is sourcing their stuff from,” added John Frigo, a seller with three private labels on Amazon, which declined to provide specifics about his own products as a result of fierce competition among sellers.
And it’s SMBs like these sellers that are in a more vulnerable position now. Ironically, that’s in part because of the opportunity they found. Many Amazon shoppers don’t care about brand name products, but are instead looking for items with good reviews at a certain price point, Adamson said.