Trump's trade war threatens online bargains from Chinese sellers

People participate in a free outdoor yoga event in Bryant Park in New York City on July 12, 2018. Women's workout leggings costing as little as 76 cents will not be available once US pulls out of the postal treaty.
People participate in a free outdoor yoga event in Bryant Park in New York City on July 12, 2018. Women's workout leggings costing as little as 76 cents will not be available once US pulls out of the postal treaty.PHOTO: AFP

SHANGHAI (BLOOMBERG) - The latest casualty of President Donald Trump's trade war? US$1 (S$1.38) yoga pants.

Trump's order that the US Postal Service withdraw from an obscure 192-nation postal treaty threatens to hit American shoppers who have grown used to bargains on platforms such as EBay and Amazon.com.

Because of the postal treaty, shipping the goods directly to consumers was relatively affordable. When the US pulls out, thousands of listings from China-based companies hawking dirt-cheap consumer goods will likely disappear.

The treaty sets fees that national postal services charge to deliver mail and small packages from other countries, and gives poor and developing markets lower shipping rates than developed nations. The agreement - and another one that China and the US signed in 2011 - has essentially given Chinese merchants a US$170 million annual subsidy to ship products directly to American homes.

"Chinese sellers on EBay and other platforms may disappear, or at the very least they will not find it so easy to sell to Americans anymore," said Gary Huang, chairman of the supply chain committee for the American Chamber of Commerce in Shanghai.

"This has been a big advantage for them for many years and how they've beat out the American seller on their own turf."

US$1 YOGA PANTS

The postal loophole can be seen in the shipping options offered by Chinese EBay sellers and others on major e-commerce portals.

 
 
 

On Thursday (Oct 18), hundreds of EBay sellers from China advertised women's workout leggings, including ones for little as 76 cents that could be purchased instantly. The seller, China-based Webstainless, has racked up more than 21,680 positive reviews from buyers in the last 12 months, according to the e-commerce site. Webstainless offers free shipping to the US.

On AliExpress, Internet giant Alibaba's e-commerce portal for international buyers, shipping is free if a pair of US$10.29 yoga pants are transported via ePacket, the name of the subsidised service by the US Postal Service. Other shipping options from companies like FedEx, United Parcel Service or DHL Worldwide Express range from US$40 to US$60, raising the cost of the cheap pants so much that a buyer might as well get them from a store or seller in the US.

Trump's directive to eliminate the postal discounts could potentially raise costs for Alibaba, while helping FedEx and other international shipping companies.

Any changes to international postal rates potentially disrupts cross-border e-commerce, the sale of goods from a retailer in one country directly to consumers in another. That business, enabled by platforms such as Amazon, EBay and Alibaba, is expected to reach US$1 trillion by 2020.

Representatives for Alibaba did not respond to requests for comment. Alibaba rival JD.com's logistics arm said it was looking into the potential impact. Amazon and EBay, through spokespeople, said they were reviewing Trump's memo and declined to comment.

The shipping rate under the postal treaty can be a fraction of what it costs to send the same item from the US to China - making returns very difficult - and it can be lower than what it costs to ship an identical product within the US.

Amazon's prices illustrate the gap: standard shipping for an iPhone case from China to a New York address is US$4.99, while from a seller based in the US is $5.99. The difference may not seem like a lot, but added up over millions of low-cost consumer items, its effect has been a disadvantage for American retailers on e-commerce portals.

"American sellers simply cannot compete," said Huang, who's also founder of consultancy 80/20 Sourcing. "It seems like Trump wants to level the playing field and one outcome is that American consumers will have less access to that really cheap stuff."

AMERICAN RETAILERS CHEER

The subsidised ePacket service limits packages to 2kg and less than US$400 value. Chinese sellers estimate shipping through the services take 10 to 20 days from China to the US.

American companies have cheered Trump's plan to withdraw. "This outdated arrangement contributes significantly to the flood of counterfeit goods and dangerous drugs that enter the country from China," Jay Timmons, the president of the National Association of Manufacturers, said in a statement.

UPS, which along with other private couriers stands to gain if the subsidised service is removed, said that withdrawal was "the right step." Under the treaty's framework it takes a year for a country to withdraw, during which rates can be renegotiated.

"It's been an unbalanced deal," said McDavid Stoddard, a director at Beyond, a shopping app that connects foreign brands to Chinese consumers. "The US Postal Service has been complaining about this for a while and we've always doubted the long-term viability of this channel."