When looking at international trade as a whole, one of the several contributing factors that can lead to sudden fluctuations is political uncertainty, particularly between the world-leading superpowers. As the U.S. and China continue to apply new tariffs and impede trade with one another, we will be looking into their building trade war and how this is affecting international trade.

The impact on businesses

The U.S. and China trade war has been running on for a while now, with over 300 days’ worth of negotiations and increasing tariffs. But how has this affected business as a whole?

When you look at business in the U.S., as well as internationally, it is smaller self-made businesses that have taken the hit first. With many losing the money that they are putting into their businesses, small business owners are seeing an increase in costs without the increase in sales. Though this is not the case for every business, price increases are seeing some small business begin to struggle.

Changes to personal finances are affecting businesses too

In addition to the impact that the trade war is having on business directly, it is also important to note the indirect impacts on businesses as the personal finances of their customers are affected.

As trading tariffs continue to escalate, there can be a knock-on effect such as increased prices for necessities like fuel, as well as a wide variety of imported goods. As the price for necessities such as fuel continues to rise, economic growth can slow and many begin to struggle with their finances. While some consumers continue to spend with quickly approved same day loans or easy credit options, many consumers opt to put alternative saving techniques in place to ensure their ability to cover the rising prices without putting themselves in financial risk.

As prices increase and customers become more averse to spending, many businesses may find sales decreasing and costs increasing, a dangerous scenario for any business.

The hesitation to invest

With tariffs now set on $250 billion dollars of Chinese goods, with plans for more on an additional $300 billion of goods, and a tariff on $110 billion set on American goods, this tariff war has shown no sign of slowing down.

This has led many businesses to be hesitant to invest. As a result, there has been a drop in tech deals year to date compared to years past and is only set to decrease. This presents issues for tech giants such as Apple and Samsung, as their parts and phones are produced in China. As this political uncertainty continues to escalate, their stocks took a hit but soon recovered, However, this sharp fluctuation is leading many to hesitate when investing in certain markets.

Reduction in supply and demand

The final way that the U.S.-China trade deal is affecting international trade is the reduction in demand for many products. With China’s weak exports in the first half of 2019, this could mean problems for a number of their major trading partners, as the technology industry and other major fields will begin to feel the pinch. However, there has also been an 8.1% drop in exports from the United States, demonstrating a drop in the demand and the significant damage being done to both sides by this ongoing trade war.

As tariffs continue to rise and exports drop, a number of major companies will have to start to pay more. This has already started to take effect in the U.S. as the economy has begun to slow, affecting industries like construction, which relies on imported materials such as aluminium and steel. With technology expenses already on the rise, tariffs could further increase expenses and cause technology, fuel and other necessities to increase in price, and exacerbate the existing decrease in demand even more.

As this trade war continues with no deal in sight, this could have a profound effect on the global economy. Only time will tell whether this is set to improve or not following the next round of negotiations. Where will you start in adapting to this new economic reality?

The post How is the U.S.-China trade war affecting international trade? appeared first on Trade Ready.

Regardless of whether or you support the Trump administration, it is obvious that Mr. Trump has re-written the global rules of marketing.

Marketing was traditionally based on careful research, forecasting of trends, evaluation of current economic growth and feedback from the market itself. But today’s successful marketing seems to be based on the concept of “perception equals reality”.

Non-stop self-promotion backed by constant imagery of the name TRUMP, a continuous media presence, bizarre hairstyle, and references to billion dollar real estate deals, all create a self-fulfilling prophecy that few want to disagree with.

Canadian business executives have typically been cautious when it comes to blowing their own horn, and this has been part of Canada’s success internationally – people like us because we are low-key. Close to 75% of our population lives within 100 miles of the U.S. border, and internationally we are seen as North Americans – but not Americans, a subtle difference that often works in our favour.

Numbers work in the States

The senior partner of an international business services firm told me the other day that his company was thinking of changing its U.S. advertising to include results – “numbers work!” He was thinking of informing visitors to his website that the firm had helped eight of their many clients to sign strategic alliances in 15 countries, resulting in agreements worth $145 million.

Another contact, a manufacturer of office furniture, has asked his Linkedin network for recommendations about his products, asking permission to include some of their comments in his U.S. advertising copy. Both of these canny executives are aware that it is impossible to know what will hook a potential American client, but one said: “In the current U.S. market, my best chance of being noticed and getting new business is to rely on a perception of success. I don’t want to be cynical, but in the States we have just seen proof on the adage that perception equals reality!”

The other way: relationships

That being said, it is worth noting that experienced exporters with clients in other countries are not changing their traditional promotional activities to boast of their prowess. Instead, they prefer to rely on long-lasting relationships with suppliers and clients abroad.

In most countries, the effort of establishing a personal bond with local contacts pays off in the long run.

A Canadian sportswear exporter to Latin America told me that, “… my Brazilian importer has become part of my extended family, and his son is now living with us in Canada. You can’t beat the kinds of relationships that can develop over time!”

Another Ontario-based franchise consultant made a concerted effort to learn Spanish, and now has a network of associates in Latin America and Southern Europe that he visits regularly. Without developing these contacts, his business would have remained a small domestic operation.

The Canadian way

Experience shows that every market must be served individually. While marketing methods may be successful in one market, it may not bring the hoped for results in another. There are no quick fixes in international trade – maintaining a steady focused effort to be the best in what you do will always succeed in the end.

The Canadian way still works:

1. adjust to your target market’s needs
2. rely on investing in personal relationships… and
3. avoid excessive bragging.

The post The success of U.S. marketing methods shouldn’t affect the Canadian way of selling appeared first on Trade Ready.

Over the last decade, U.S. exports to the Asian country also increased by 198%, the U.S.-China Business Council said in a June report.

But Chinese growth has been slowing down for some time, and with that, demand for U.S. exports to the country.

In August alone, both imports and exports fell sharply in the month of August. Chinese exports dropped 6.1%, while imports dropped by 14.3%.

Chinese stock markets also had a rocky month in August, with investors selling off Chinese stocks over fears that the market was finally slowing down. It’s estimated that some US$5 trillion, or 40%, of the value in Chinese markets has been lost.

How does the yuan impact U.S.-China trade?

In response, Beijing decided in mid-August to devalue its currency, the yuan, causing it to drop to a four-year low against the U.S. dollar, though Chinese officials now say that the yuan has stabilized.

“At present, the exchange rate of RMB against dollar tends to be stable; and most of the correction of the stock market has taken place, so the financial market is expected to be more stable,” China’s central bank governor Zhou Xiaochuan told the G-20 meeting in Turkey Sept. 6.

However, the devaluing of the yuan will have a direct result on the amount of American products that will be purchased by Chinese citizens, as a weaker yuan and a stronger dollar mean that the cost of American products will go up.

Overall exports to China have already seen a drop of 8.3% in June 2015, compared to exports in June 2014.

Some U.S. companies may feel the effects more than others

A number of American firms will see their export figures deeply impacted by the change, and these include apparel chain store Macy’s, heavy equipment manufacturer Caterpillar, and General Motors.

Macy’s recently launched a joint venture with a Chinese company as part of an e-commerce initiative, while Caterpillar relies on China’s construction and mining sectors to bolster sales.

Meanwhile, GM has been looking to China to revitalize its flagging car sales in the West, but will have to change tack once Chinese consumers feel the pinch of the weaker currency. Automobile sales have already dropped by 6.6% in a year-on-year decline as of July 2015.

American University professor Thomas V. DiBacco estimates that computer manufacturer Hewlett-Packard obtains 11% of its total revenue from Chinese sales, a figure that is matched by IBM. Corning Inc., which produces glass and related materials for industrial and engineering use, relies on China for 20% of its revenue.

Limiting the risk from a Chinese economic downturn

“At their current rate, [American exports] will be 5 to 10 percent lower than in 2014,” the U.S.-China Business Council said in the report.

“This has been primarily because of the slowing economy. The diminished value of the yuan will probably exacerbate this trend.”

On the whole, exporters of heavy machinery, industrial machinery, and minerals will be hit hardest by these currency changes, while other exporters won’t be impacted nearly as much.

U.S. exports to China account for around 7% of all American exports, roughly equivalent to 1% of U.S. GDP, according to a Wells Fargo report released Aug. 13.

“Even when indirect effects, which operate through the exposure of other countries to China, are considered, it appears that total American exposure to China is rather limited,” the report said.

Do you think most U.S. companies are equipped to handle China’s current economic situation? If not, what changes do they need to make?

The post How much will China’s slowing economy impact U.S. exports? appeared first on Trade Ready.

As the U.S. enters into trade negotiations to create long-standing agreements with the European Union and with Asian partners, a debate is raging about whether or not international trade pacts are hurting or helping the U.S. middle class.

This question is especially poignant, given how many workers have fallen out of the middle-class category following the global financial crisis, and continuing concerns over the slow rebound in hiring and persistent wage stagnation across industries.

Trade deals have been seen in a negative light since NAFTA was passed in 1993; many felt that the promised returns of the deal never materialized and blamed the deal for the loss of manufacturing jobs.

The argument for trade deals

But two economists from the centrist think tank Third Way, Jay Chittooran and Jim Kessler, assert that this argument is outdated, citing more recent trade deals that have had a substantial benefit for blue-collar workers in the U.S.

The U.S. trade balance, in the goods sector, has benefited tremendously from trade deals made with 17 countries since NAFTA’s signing. These countries include Singapore, Australia, a host of Central American states, Oman, and Bahrain. according to their research.

Limiting their analysis to goods, Chittooran and Kessler argue that the U.S. now has a trade balance of $31 billion with these 17 countries, since NAFTA. This is in comparison to the combined $3 billion deficit the U.S. had with these 17 countries in the years before the trade deals were signed.

Since signing trade deals with El Salvador and Honduras roughly nine years ago, the U.S. trade balance with these two countries have improved by $3 billion in manufactured goods alone.

It’s not just in the production of goods that the U.S. economy benefited from these trade deals, they add. The provision of services, which is primarily provided by white-collar workers, also increased substantially with these 17 countries.

In his State of the Union speech on January 20, President Barack Obama made a more generalist argument for why trade deals are important for the U.S. economy.

“I’m the first one to admit that past trade deals haven’t always lived up to the hype,” he said.

But ninety-five percent of the world’s customers live outside our borders, and we can’t close ourselves off from those opportunities.

“More than half of manufacturing executives have said they’re actively looking at bringing jobs back from China. Let’s give them one more reason to get it done.”

How crucial is the export of manufactured goods to the U.S. economy?

Criticism of trade deals comes mostly from the left, which considers itself the defender of the American middle class. Republicans embrace free trade and allowing the market to perform without the intrusion of the federal government.

Robert Reich, an economist and former Secretary of Labor under President Clinton, argues that the nature of free trade has changed drastically from the 1960s and 1970s, and no longer focuses on the production and export of manufactured goods.

U.S. exports are now overwhelmingly ideas and brands, and take the form of software, franchises, and scientific processes, Reich argues, pointing to the U.S. firms of Google, Apple, Walmart, and Microsoft, to name a few. As such, only Wall Street and the top 1% of the country’s income scale stand to make any profit in modern trade agreements.

Undoubtedly, trade deals bolster America’s gross domestic product.

But while these agreements may make goods somewhat cheaper, this comes with its own price tag: the loss of jobs in certain sectors and diminished wages for the middle class

Reich contends.

He bolsters his argument by citing statistics about the U.S.-China trade balance; the U.S. has a $23.9 billion trade deficit with the East Asian economic giant, which Reich sees as responsible for continuing wage stagnation in the United States.

In the end, the president is intent on winning more global trade agreements, and the Republican-led Congress is behind this initiative. The ultimate impact of trade agreements on the American middle class will reveal itself as these trade deals come into effect.

What’s your take? Are you for or against trade deals?

The post Will trade deals destroy the U.S. middle class – or save it? appeared first on Trade Ready.