Oct 10, 2019

Bigger is better in the U.S.-China trade fight

Erica Pandey, author of @Work

Illustration: Sarah Grillo/Axios

Scores of American small businesses are losing profits and wasting inventory in the U.S.-China trade fight. But the biggest and richest are coasting — in every sector.

What's happening: "Bigger guys, just by virtue of their size, can weather the storm better," says Tom Duesterberg, a trade expert at the Hudson Institute.

Bigger farms are getting even bigger, while smaller ones are going belly up. "The farms left standing after the trade [war] will likely be some of the biggest in the business," Reuters reports.

  • The U.S. lost more than 12,000 farms in 2018. There are a slew of reasons for the decline, but a trade war doesn’t help.
  • At the epicenter of the crisis are soybean farmers. They've lost China, their biggest buyer, due to the trade war, and soybean prices have cratered as a result.
  • But many big farms have been able to circumvent the problem. One North Dakotan, whose farm is about 100 times the size of a typical one, shelled out $800,000 to buy steel bins that can hold excess soybeans until prices come back up, per Reuters. That's not an out available to most farmers.

Bigger retailers, like Walmart and Amazon, have also been able to stave off the trade war's effects.

  • “Larger retailers may be able to find alternative sources or be able to absorb a price increase without passing the cost on to their customers,” David French, senior vice president of government relations for the National Retail Federation, tells the Washington Post. “But the smaller you are, the more vulnerable you are to the impact."
  • Smaller retailers that are forced to raise prices will find it even harder to compete with the giants. American consumers are increasingly unwilling to accept price hikes on everyday goods, Axios' Courtenay Brown reports.

Bigger manufacturers are also faring better than their smaller counterparts.

  • For most American companies, China is a major part of the supply chain — and rejiggering a decades-old supply chain is costly and difficult, Duesterberg says. The big manufacturers have the resources to make these sweeping changes, and the small ones don't.
  • In some cases, the bigger players can even get Chinese exporters to cover some of the cost of the tariffs for them, says Duesterberg. "They’ve got more leverage" because they're making massive orders.

What to watch: Chinese officials will arrive in D.C. on Thursday for the latest round of trade negotiations with their American counterparts. Look for more small businesses to suffer — or even close their doors — if the parties fail to reach a deal.

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