Yes, it is a trade war, and even though some in the media are saying that it's just beginning, the president believes that this "war" has been going on for a long time.
Make no mistake about it, President Trump is following up on his campaign pledge to level the playing field in international trade. To him, the world needs us more than we need them. There is some credence to this position. The U.S. is by far the world's largest economy, with a projected $22 trillion in GDP in the next few years. Our economy still significantly surpasses China's and, according to this great chart from the American Enterprise Institute, some of our states--like California and Texas--have economies larger than some of our larger trading partners, like the U.K. and Canada.
So the trade war is heating up. Tariffs have been levied on steel and aluminum from China, Canada (which has fought back with its own tariffs), and the EU (which is taking its complaints to the World Trade Organization). More tariffs have been announced on billions of Chinese goods--and the Chinese have responded with tariffs on U.S. agricultural products, particularly soybeans and pork, which could cost farmers in states like Iowa and Nebraska hundreds of millions of dollars in lost revenue.
So what do you do? How can a business survive this trade war? You could certainly wait things out and see what happens. But, in my opinion, this is not going to be a short-term game. So instead, my smartest clients--those that are looking ahead and making plans months, even years, in advance--are taking these steps:
1. Raise prices while communicating with your customers.
If you're selling products that are made with steel and/or aluminum, then it's a foregone conclusion that prices will be going up. But there may be time. Some of the tariffs aren't fully sinking in for a few months. Tell your customers. Let them know the situation. Do your best to gradually increase your prices without hitting them all at once. You don't like surprises and neither do your customers, so do what you can do to help them cope with an increase in prices as far in advance as possible.
2. Get creative with financing.
Farmers will still need equipment, even if their revenues are going down. Other businesses will still have capital spending plans. What can you do to help get deals done? Partner with leasing companies, banks, and other financial service providers that offer better ways to finance the purchase of your products. Offer extended payment terms if you can afford to. Talk to banks that offer Small Business Administration loans and find out about specific lines of credit that could be available to you and your customers. Interest rates are still relatively low, so there are opportunities to work with your customers to help them with their cash flow challenges while this trade war goes on.
3. Cut overhead.
The idea is to maintain profits during these challenging times. In fact, shouldn't you always be doing this? Take a look at your operational and general and administrative expenses and put on your accounting hat. Act as if you're in a recession. Revisit every dollar and look for ways to cut your overhead. Every percentage point that you can add to your margins will give you more breathing room if customers are pushing back on price increases.
4. Expand other services.
If you sell equipment and prices are going up, then it's likely that your customers may put off purchases and instead rely on their existing machinery for the time being. So what about maintenance and repairs? Look at your customer base and think about other services you can perform that will help them while they defer purchasing bigger items or look to cut their own overhead.
5. Finally, explore new markets.
Maybe this trade war is a wake-up call for your business to better diversify. Maybe relying on one industry, one region, or even one large customer isn't such a great business model. What other companies in places and industries that are not as affected by the trade war can use your products or services? The "war" itself isn't happening all over the world, so what other export markets might be available where you can sell your products and avoid getting involved in unnecessary tariffs? Reach out to your local Small Business Development Center, SCORE, and other services to help identify those markets and, while there's still time, re-invest your marketing and business development resources elsewhere.
For years, many of my clients have complained about our unfair trading environment with China and other countries. They've complained about technology that's stolen, products dumped at below-market prices, government interference, and lack of access to foreign markets. Now, something is being done. Like all wars, this is not going to be easy, fun, or short term. We don't know if the costs are even worth it.
But the hope is that when things are over, there will be more opportunities and better profits in the years to come. In the meantime, take a few steps to navigate your company through these challenges now. That way, you'll be around to take advantage of those opportunities in the future.