Thanks to the likes of Amazon, China’s Shein, and the burgeoning business of entrepreneurs advertising on YouTube for goods they sell directly from China, e-commerce is set to push the U.S. trade deficit to $1 trillion soon.
That’s the goods deficit. If it doesn’t happen this year, it will happen next year. Americans are buying more and more goods from Asia. Those goods often compete directly with American-made goods. As this e-commerce-direct-to-China model picks up steam, it will make less business sense to invest in job-creating manufacturing in the U.S. when you can just hang your shingle on a social media platform and outsource direct sales and manufacturing to China as if it were the 51st state.
To put that trillion-dollar figure in perspective, the U.S. is importing nearly as much as the entire Mexico economy produces, which had a 2019 output of $1.2 trillion, based on World Bank data. Our import value will also be greater than the entire economic output of Norway and Sweden, combined, in 2021.
E-Commerce Clogging Ports, Scaring the Whales
CPA has written about port congestion over the last several months, and the fact that the big global shippers, like Maersk, were sending empty containers back to Asia (as in China) to quickly fill them back up with mostly consumer goods. Consumer goods got a pass in the Trump trade war tariffs. Moreover, e-commerce benefits from de minimis exemptions as any good priced under $800 is not subject to port duties. This is right in the wheelhouse of almost every e-commerce platform, where the average purchases done on sites like Amazon are under $500.
According to SEKO Logistics, e-commerce imports rose more than 230% in the first quarter of 2021 versus the same period in 2020. Shippers were more interested in getting top China dollar for containers than they were in the lower-priced container filled with American soybeans, or some manufactured good.
The ongoing container ship situation, sparked primarily by the multinational shippers and at the benefit of the global manufacturing hub – China – has provided us with another vivid example of why supply chain resilience is imperative.
As physical economies go digital, the virtual economies of the U.S. and China are now merging.
On June 24, The Seattle Times reported that shipping from Asia was coming in at a record pace. One of the port officials posited that it was due to online consumer goods orders – whether it’s a pair of sneakers, or a gas grill.
“This thing happened in the country with nobody going to restaurants or vacations for a year and a half and they had free cash and decided to make Amazon stocks go through the roof,” Fred Felleman, commission president at the Port of Seattle, told the paper. “We have flooded the market and created this inability for the tail to keep up with it, there is this whole ripple effect.”
Container ships coming in from Asian ports are staging out in the harbor for days at a time, waiting for the go-ahead to dock.
Thanks to all the container ship traffic off the coast of Washington, sightings of orcas and gray whales, normally frequent there, have nearly stopped altogether, as whales avoid the area due to all the noise of ship engines. The boat congestion has also cut off the gray whale population from some of their prime spring feeding grounds, the paper reported.
CPA has been arguing that globalization is now a headwind not only for climate change policy makers but also for those who care about the environment. While shipping large amounts of goods by ship is cheap, where those goods are made, how they are made is increasingly important.
Most Americans shopping online do not realize where their products are coming from. Amazon won’t tell you.
The Country of Origin Labeling Online Act (COOL Online) passed as part of the U.S. Innovation and Competition Act in the Senate this month. COOL is now onto the House, where they are debating their own version of the so-called ‘China bill.’ Retail trade lobby groups like the National Retail Federation are against COOL. Amazon is against it. Walmart is against it.
Americans overwhelmingly want to know where the products they buy online are made. But they also want to support products Made in America. The import lobby and large online retailers like Amazon aren’t naïve. They know that efforts like COOL Online could threaten their direct-from-China business model. Thankfully, as of now, it looks like Congress is poised to side with American consumers.