Hlavní práce72774_patv00.pdf, 1 MB Stáhnout

(1)

UNIVERSITY OF ECONOMICS, PRAGUE INTERNATIONAL BUSINESS

THE IMPACT OF U.S. AND CHINA TRADE WAR ON AMERICAN E-COMMERCE BUSINESS: THE CASE OF

AMAZON

Author: Viyaleta Patapenka

Thesis instructor: Andrea Escobar Rios, Doctora en Ciencias

School year: 2020/2021

(2)

Declaration:

I hereby declare that I am the sole author of the Bachelor thesis entitled “The impact of U.S.

and China trade war on American e-commerce business: the case of Amazon”. I duly marked out all quotations. The used literature and sources are stated in the attached list of references.

In Prague on December 4, 2020 Viyaleta Patapenka

(3)

Acknowledgment:

I hereby wish to express my appreciation and gratitude to the supervisor of my thesis Andrea Escobar Rios, Doctora en Ciencias, for her significant support and valuable help

during the wring process of my bachelor thesis.

(4)

Introduction

Within the digital revolution, electronic commerce, also known as e-commerce, has been set in motion. The possibility of using the Internet to sell and buy goods or services has created enormous opportunities for the development of online business models that the world has never known before. As a result, the society can see the colossal achievements of today's business conglomerate behemoths such as Amazon and e-commerce business founders such as Jeff Bezos on the top among the wealthiest people in the world. By using new technologies, the company has changed the traditional consumption behavior and created the different way of doing retail business. Since the foundation in 1994, as one of the first online retail stores in the world, Amazon has been going through many challenges that continue to appear today (Statista (a), 2020). One of these challenges is the trade war between the United States (U.S.) and China with the start point in 2018, as a result of the protectionism intensions of the two super economies.

Every trade war is the issue of continuing debate of both positive outcomes and side effects on the domestic economy and business environment. Nevertheless, the administrative office of the 45th American president successfully promoted U.S. protectionism policies. The ex- president has been declining any negative outcomes, shattering the global trade in the last few years.

Donald Trump, who has named himself the “Tariff Man”, initiated the imposition of tariffs on more than half of Chinese originated goods, which had been imported to the U.S. market during the period of 2018-2019. This discussion and news broadcast of ambiguous decisions of the ex-president administration have not bypassed the questioning about the impact of the American trade policies on e-commerce business. The debaters and researchers of trade war impacts did not avoid such companies as Amazon and its third business parties,which target an American customer with imports from China.

The lower production costs and a big choice of produced goods in China created the business model of buying or producing relatively cheap merchandise abroad and selling at markup in the U.S. – this model has been widely applied in practice by Amazon businesses (FRPT Research, 2019). Bloomberg senior expert Shelly Banjo described the e-commerce giant as the

(6)

2

poster child for a globalized world, where sellers could make business advancement by making their goods less expensively in China and sell it to the end customers in the U.S.

(Banjo, 2019). After the expansion of the trade restrictions measures, the advantage of importing goods from China model started to be more questionable, along with the trade war impact on business. The ecommerce companies, which create a demand in American market and use a Chinese supply, have been facing possible difficulties of finding the right business strategy, which are triggered by ambiguous observations. The thesis interest is guided by getting clearance about the question of the impact of the U.S.-China trade war on e-commerce business and in particular American Amazon online business.

The Amazon company is the vivid representative of American e-commerce market, which has the biggest online retail business share in the country. In the thesis work, Amazon would be used as a sample of the e-commerce market. The online business of the company is

represented not only by the first-party business owned by the company, but also by separate third party businesses that lead their activities through Amazon online marketplace.

The principle thesis goal: in the modern world, to run a business, an inquiry of possible external factors of influence is required.The awareness of the recent changes that have happened in international trade and its outcome on the business environment helps business advancement. In order to provide strategies, that help business to eliminate the negative impact of trade protectionist policies and maximize profit, the thesis's principal objective is to analyze the impact of the trade war between the U.S. and China on the American e-commerce business in the period of 2018-2019, by taking the example of Amazon company's online retail sector in the U.S..

The first chapter is directed to give an overview of electronic commerce business: describe basic terminology and classifications that would be used in the thesis, market development and main characteristics of the American e-commerce. It would continue with the outlook of the Amazon company as the biggest online retail company in the U.S, by describing the

company’s development, values, strategies, and online marketplace model, along with the model parties. The chapter is making an overview of protectionism, tariffs, trade barriers, the U.S.-China trade war background, and the imposition process of additional ad valorem tariffs

(7)

3

on imports from China, including consumer goods categories, which have been sold on Amazon.

The second chapter is intended to analyze Amazon first party and third-party online

marketplace performance during 2018-2019. In the chapter would be the examination of the U.S.-China trade war’s side effects on Amazon’s third-party seller’s business behavior and the company’s business decisions, considering the importance of the business party’s bargaining power and level of market competition.

The third chapter provides and discusses possible business strategies to illuminate tariff trade barriers impact on companies that manufacture or supply goods outside the domestic market, based on the Amazon company experience with the imposition of tariffs on consumer goods from China. The chapter is built on the analysis and outlook of the second chapter.

The example and analysis of Amazon business, which interacts with international trade and trade policies, would be useful for many businesses in the global environment. The business strategy suggestions, which would be provided as the end result of the thesis research and analysis, would be beneficial for any company that faces with cross-border movement of its goods or raw materials to the domestic or foreign market.

Problem Statement

Objectives

The principle thesis goal: In the modern world, to run a business, an inquiry of possible external factors of influence is required.The awareness of the recent changes that have happened in international trade and its outcome on the business environment helps business advancement. In order to provide strategies, that help business to eliminate the negative impact of trade protectionist policies and maximize profit, the thesis's principal objective is to analyze the impact of the trade war between the U.S. and China on the American e-commerce business in the period of 2018-2019, by taking the example of Amazon company's online retail sector in the U.S..

The principal goal will be answered by the main thesis’s question: “What strategy e-commerce business has to choose when facing protectionist policies?”. The strategies would be proposed

(8)

4

based on the results of the analysis and discussion part. This chapter is directed to analyze and discuss the impact of the trade war side effects on Amazon business parties, which are caused by imposed tariffs on customers goods with a Chinese origin between 2018 and 2019. Due to Amazon is the biggest American online marketplace for third-party vendors, which supply goods all over the world, have the same buying audience and fair competition, the company, as an example, is a definitive representative of e-commerce position in the United States.

The bachelor thesis has two specific objectives. The first one is to understand whether Amazon business parties were affected by the side effects of the trade war or not: which of them were paying trade war additional tariffs costs. The goal will be attained through measuring the changes in Amazon business performance and third-party seller’s business during 2018 and 2019. The analysis and discussion of “who is paying tariff costs” shapes understanding how strategies, which are directed to illuminate trade war effects would work for Amazon business parties. In order to understand how to illuminate the side effects of the trade war on Amazon business, the second specific objective is intended to understand the changes of business decisions and strategies of Amazon caused by the implementation of additional tariff duties on U.S. imports from China.

Methodology

The thesis’s methodology is based on secondary data combination, which helps to reach the thesis goals. The main criteria for choosing data would be reliability of sources and time relevance. The graphs and tables would be based on the analysis of research data of the secondary sources. The main analytical reports and research, that are used in the thesis, would be accessed through Amazon database of annual reports from 2016 to 2019, Organization for Economic Co-operation and Development database, World Trade Organization Reports, International Monetary Fund, Center of Economic Policy Researches, Congressional Research Services, U.S. Customs and Border Protection, United Nations Conference on Trade and Development, Department of Homeland Security, Statista, EBSCOhost and Passport databases. The analysis would use data from interviews of third-party sellers given to Bloomberg, BBC and CNN news agencies, based on the combination of questions about the

(9)

5

trade war impact on businesses. The crucial role of the analysis and discussion part plays the date of the results taken from surveys, which had been done by the American analytical business agencies, such as Jungle Scout and Feedvisor, which provide with statistical data and research results of Amazon e-commerce marketplace. Jungle Scout is an agency that connects Amazon sellers with experts of digital business that provide help in doing business and

analysis on Amazon selling platform. The company supports 400,000 entrepreneurs and assists 3 billion of Amazon sales. Feedvisor is an artificial intelligence platform that analyzes e-commerce marketplaces algorithms for online sellers.

Theoretical Framework

1.1. Electronic Commerce overview

Since the middle of the 1990s, electronic commerce has been recognized as a new approach to leading the commercial transaction(OECD (a), 2016). The development of the World Wide Web gave a marketspace entry mode to firms of any size, location, and resource availability.

The business sector has been defined as a main driver of the field – has brought the

accustomed ways of consumption into a virtual world and, therefore, penetrate online retail all over the globe. Online commerce gave retail new ways of doing business, new market

players, access to technologies, customization, and the possibility of market expansion.

1.2. E-commerce terminology

• Electronic commerce (EC, or e-commerce) has a variety of names and definitions. It also could be named as online commerce, internet commerce, online business, electronic business(e-business). In broad terms, electronic commerce is any commercial relationship between consumers (C), businesses(B), and government(G) in different variations of pairing. The World Trade Organization defines the term as “production, distribution, marketing, sale, or delivery of goods and services by electronic means”(WTO (a), 2017).

Furthermore, when the organization is pointing, the transactions can be between such parties as households, enterprises, individuals, government, or any other public or private organization. Referring to OECD explanation: “Electronic commerce is the sale or

(10)

6

purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing orders”(OECD (b), 2011).

• Electronic retail (e-retailing, e-tailing), also known as online retail, sales of consumer goods through the Internet.

• Third-party sellers are merchants that using online platforms to sell goods or services and paying fees to the marketplace operator. For example, Amazon provides shoppers with a search system and goods description, comparison, manages a buying process, distribution, and return services.

• An online platform is a digital platform that runs a multiside market for sales and

purchases digital or physical products. OECD defined an „online platform“, as an online market that facilitates interactions between different groups (OECD (c), 2019). Some online platforms support cross-border e-commerce. For an instant, Amazon provides customers with the biggest digital marketplace and operates over 11 marketplaces in different regions – what makes it to serve over 180 countries (Statista (b), 2020).

• The online marketplace is a website or application, allowing businesses or individual sellers to offer goods and services online. It has the role of a „virtual bridge" between the buyer and seller (Li, Frederick and Gereffi, 2019).

• Offshoring is usually used to describe the movement of services or production, so-called offshore, from the domestic market abroad. Imports or services based on domestic companies' investment. Offshoring is used to reduce the cost of business or use the advantage of foreign market business advantages. (OECD (d), 2013)

• Dropshipping is an e-commerce business model, where goods are housed by a

manufacturer or wholeseller and don’t stock at seller properties. After costumer purchase goods, the role of physical fullfillment and direct shipment to the end-custmer is on the goods holder (Hayes and Youderian, 2013).

• Retail Arbitrage is an e-commerce business model, where sellers purchase discounted goods to sell to end-customers with higher margins on online platforms (Bourlier, 2020).

(11)

7

• Marginal cost of goods is the change in total cost, when the number of produced or imported goods changes by one unit.(Hitt and Chen, 2005)

1.3. Classification

E-commerce is distinguished by the nature of the actors that are taken in a transaction. Most often used business models in e-commerce between transacting parties(Man, 2020):

Business-to-Business(B2B) model provides goods services from one business party to another.

For example, an Amazon B2B model in retail is based on providing marketplace distribution services for third-party vendors and outsourcing goods production to a party outside the company.

The Business-to-consumer(B2C) model facilitates retailing relationships, where individuals purchase goods or services from a business party. Amazon's B2C model is based on selling to the end-user tangible products, along with digital products such as media content, electronic books, and others.

Consumer-to-consumer (C2C) model accelerates commerce between private individuals.

Amazon allows users to trade goods by themselves using its online platform.

1.4. E-commerce development

During the last decade, the expansion of EC in the world has been seen: B2C e-commerce grew from a share of 0.54% of the world GDP in 2009 to 1.61% in 2018 (Statista (c), 2018).

The e-commerce market hit the number of $25.6 trillion in sales globally. The number of online shoppers grew from 1.114 billion in 2016 to 1.452 billion people in 2018 and spent about $3.46 trillion online in 2019. (Statista (a), 2020)

The creation of modern e-commerce, which we used to see today, started in the last century with Electronic Data Interchange(EDI), which substitutes physical document mailing by sending data from one computer to another. As a result, the transfer of invoices, orders, and business transactions were brought into the digital world. Key events influenced e-commerce progress(Moagar-Poladian, Dumitrescu and Tanase, 2017):

• First EC company Boston Computer Exchange for selling old computers in 1982

(12)

8

• The first online purchase was made with a credit card in 1994

• The biggest global selling platforms Amazon and eBay, also known as Auction Web, appeared on the market in 1995

• Alibaba Online created a $25 million funding online marketplace, using B2B, B2C, C2C business models in 1999

• The start of online marketing expansion has been made after Google introduced an advertising service, Google AdWorks in 2000, which launched a tool, a pay-per-click context.

• Amazon created access to Amazon Prime membership in 2005

• The easiness of electronic payments through cellphones is a result of Google wallet digital payment method creation in 2011

1.5. Main characteristics of United States e-commerce market

The number of online customers increases within the increase of population consumption expenditures, the Intern penetration, and popularization of online marketplaces, which stimulated by online marketing and social media. The U.S. has one of the biggest consumer markets, high penetration of the Internet, well-developed online delivery, payment services, and marketing technologies, one of the best consumer protection system (OECD (e), 2016).

Key demographical factors of the U.S market that stimulated e-commerce growth in the last five years(Statista (c), 2020):

• Population (million people): 322(2015) to 334(2019).

• The population of economically active people, between 20-64 years old(million people): 192.4 million (2 015 ) to almost 194 (2019).

• Consumption expenditure: $16.903 trillion in the U.S, in comparison with world consumption of $63.083 trillion

• Internet Users penetration:82.4%(2015), 83.3%(2016), 83.7%(2017), 84.4%(2018), 84,7%(2019)

(13)

9 Figure 1: Online share of total U.S. retail revenue by-product category

Source: Author, based on the data of the Statista (e), 2020

• The USA has the biggest number of digital buyers who are well-acquainted with online shopping(million people): 230.57(2017), 246.85(2019), 255.99(2020) and expected to reach 278.33 (2024).

• According to Statista, online shopping is the most common among Millenials with a penetration rate of 85%.

• Well-developed online payment system and 40% of all online purchases made from a mobile device

The U.S. has been reached a status of e-commerce world giant that gave a birthplace to the industry. Retail e-commerce sales in the country reached more than $343 billion of physical goods or $602 billion, including digital services. For 2024, online retail e-commerce is

projected to reach $476 billion in sales and generate 154 billion in apparel and accessory sells.

North America makes about 51% of the world e-commerce annual growth, where sales made online increased by 15%, in comparison to 3.5% growth in retail sales (Statista (c), 2020).

Key figures of the U.S. e-commerce market:

Category E-retail

revenue share (%) Books, music & video 54.9 Computer & Consumer

electronics

42.7

Toys & hobby 36.8

Apparel & accessories 28.9 Office Equipment & supplies 26.6

Other categories 24

Furniture & Home furnishings 23.5 Health, Personal care & beauty 11.1 Source: Author, based on the data of the Statista (d), 2020

Figure 2: Online purchases by the brand in the U.S.2020

Online shop Share of 4191

respondents, that ordered in the store in the past 12months (%)

Amazon 85

Walmart.com 45

Target.com 26

Bestbuy.com 19

Kohls.com 17

Homedepot.com 13

Chewy.com 12

I have not bought online 4

Other 15

(14)

10

Figure 4: Key factors of choosing online shop

Factor %

Competitive pricing 70

Free shipping 62

A wide selection of products 50 User-friendly online experience 32 Shopper reviews, user-generated content 25 Accurate, informative product descriptions 22

Free returns 21

Strong search functionality 13 Relevant content (e.g. blogs, links to articles) 6

Figure 3: Market share of U.S.

e-commerce companies

Online shop Market share (%)

Amazon 38.7

Walmart 5.3

eBay 4.7

Apple 3.7

The Home Depot 1.7

Wayfair 1.5

Best Buy 1.3

Target 1.2

Costco 1.2

Macy's 1.1

The online market makes 16% of all retail sales in the U.S and has a growing tendency. In 2019 the biggest sales growth in e-commerce occurred in Housewares and Home Furnishing category – an increase of 22%, Food, and Beverages online purchases grew by 22% as well, along with Sporting goods 21%, Health and Beaty 19%, Jewelry, Apparel, Auto Parts increase by13% each (Statista (c), 2020).

2. Amazon overview

2.1. History and company development

One of the wealthiest world companies was incorporated in 1994 by Jeff Bezos, a former vice president of the investment firm on Wall Street. The founder left New York and opened a bookselling online store in Seattle. The range of products selling online has been increasing within time and became a virtual Walmart by selling a diverse product like music, video games, electronics, clothing, hardware, and others. Besides the online market place, the

Source: Author, based on the data of the Statista (f), 2020

Source: Author, based on the data of the Statista (g), 2020

(15)

11

company develops other services. The leading position takes cloud computing service.

Amazon built shipping and logistics services, media production and distribution, video-game streaming platforms, retail, and book stores, as well as an established online pharmacy and even digital home assistance (Thierry and Lescop, 2009).

The Amazon marketplace offers service not only to end-buyers, but also to other businesses, connecting third-party vendors to customers. Today, the online retail position of the company reached the point of 606 million selling products only in the U.S. marketplace (DePillis and Sherman, 2019). The e-commerce business gets 52,4% of all online retail spendings and 54%

of all searched products online in the U.S market. In 2018, the number of global monthly active users of Amazon marketplace is 310 millions, compare to the Google Chrome global users number of 2.76 billion (Kenney and Zysman, 2019).

Amazon also has its own private-label produced goods from 2009 – the number of private- label brands has cumulated to 137, which of those has a minimum of 1500 product

distinctions. Most of the private labels are fashion brands, which numbered 106 in 2019.

However, the share of third-party sellers is 58% in 2018, which was steadily growing up from 3% since 1999 (Amazon (a), 2020). Amazon hit 1 trillion U.S. dollars (USD) worth in 2018.

The investment of 1000 USD in Amazon’s IPO back in 1997 would bring 626000 USD (Hoffman, 2017).

2.2. Primary principles and values

Jeff Bezos was one of the first who understood the principles of Internet retailing. He got the idea of trading real estate for technology: real estate gets more expensive and technology gets less expensive with time. The founder wanted to build a platform where customers can

purchase anything. The usage of technological tools and eager to build a primary technological company, allowed Amazon to be ahead of other retailers (McGinn, 2014).

Jeff Bezos number one priority is that Amazon becomes the most customer-centric company in the world – the relation with a customer is the biggest company value. The customer-centric for the company means always listen to the customer, analyze how to make satisfaction, and then meet their needs. The company believes if it stops hearing the customer, it will fail.

(16)

12

Amazon found out what customers appreciate the most: selection, variety, service

convenience, and lowest price – issues that encourage people to come again and again. The company’s web page has a graphical symbol from A-Z, which means high product availability and variety. The selling platform does not look fancy. It has minimum graphics, however, well optimized and making product search and purchase convenient. That shows that Amazon not only has great values but means that and gives it practical application. The companies main value lies in providing high-quality service and goods varieties, along with affordable prices to satisfy the customer (Thierry and Lescop, 2009).

2.3. Achievements

The Amazon empowerment augments from day to day, thanks to the quick implementation of diverse ideas and focuses on technological development from company birth. During the last five years, the company purchased the American multinational supermarket chain Whole Foods, launched restaurant services, opened a physical retail store, created a drone-based delivery system, and opened a cashier-less grocery. The company sells its products to NASA and the NFL.

Over time, Amazon has become not only the world's e-commerce dominant, but also a technological giant. The range of innovations was implemented by the company: one-click buying, automated warehouses, no cashier stores, Amazon web services. The company explores artificial intelligence, robotics. Personalization technologies helped to make the buying process easy and fast.

The company took advantage of offering customers opportunities to use new technology products and services. The Amazon Kindle, introduced in 2007 was one of the most successful products. In a couple of years, the consumption of the most popular electronic books exceeded the total sales of paper books and boosted the company in that period to a new level. Amazon made the widely available smart speaker device Amazon Echo powered by the virtual personal assistant Alexa, which generated total sales of more than 100 million items. Amazon's

empowerment gets bigger every day, due to financial resources and focusing on technological development from the first days of the company's existence (Khan, 2019).

(17)

13

During the last five years, the company purchased the American multinational supermarket chain Whole Foods, launched restaurant services, opened a physical retail store, created a drone-based delivery system, and opened a cashier-less grocery. The company sells its products to NASA and the NFL.

2.4. E-commerce Strategy

The Amazon founder well implemented the economy of scale strategy in practice. The company strategy described as growth causes lower costs, which causes lower prices and provides better customer choice. Jeff Bezos has been sure that the company can be big or small but it is hard to be medium. By using the principles of the economy of scales, Amazon started to sell software for storefront and created a platform for entrepreneurs. The owner was sure that it is less expensive for the new business to buy their products and to work with them by less spending on technology and lowering fixed costs. Additionaly, Amazon has a wide vision which is based on a combination of company growth and usage of customer experience.

The strategy leads to an economy of scale and economy of scope – helps to lower prices and increase product variety to satisfy more customers(Stig Leschly et al., 2020).

The Amazon business strategies are widely correlated with its business value of customer satisfaction, the attention of which Amazon earns by differentiation its services from its competitors. Secondary Amazon has not afraid to launch new service tools for its B2C and B2B business. For example, the online book retail business has differentiation from other companies by giving an opportunity for customers of great variety, easy search, and read a few pages of the book before buying. The launch of Amazon Prime subscribtion options of two- day free delivery and other customer benefits has been attracting regular users to change their purchase habbits and has been used as competitive advantage aginst other online retailers (Kenney and Zysman, 2019). The company's differentiation strategy also stimulates the implementation of new technologies, such as drone delivery, self-driving delivery vans, and 3- D printing trucks. The company created such conveniences as one-hour delivery, promise, free refund, one-click check-out, smart recommendations, and personalization based on customer data (Kandemirli, 2018).

(18)

14

The economy-of-scale strategy leaded Amazon’s marketplace with a big concentartion of business competitos in each segment. Amazon created such a business environment, where it could take advantage of third parties through it access to marketplace place operations, marketing tools, and e-commerce data of other sellers' businesses. The giant company has been benefiting from the implementation of its strategies that create its private products and services, privileges, and comparative advantages (Khan, 2019).

2.5. Business segmentation

Amazon divides its company operations into three categories. The first one is North America, which includes American, Canadian, and Mexican online platforms. The second one is international, for example, Indian, Italian, German platforms that operate on country origin nature. The last one is Amazon Web Services(AWS), the segment is responsible for global sales of cloud storage, databases, technology, online infrastructure, computing, and other services. The company takes a leading position not only in online retail but also in providing services in education and training and support AWS, Amazon Devices, and Artificial

Intelligence (AI) software development, content development with a huge variety of support activities (Amazon (a), 2020).

2.6. Amazon Marketplace business model

Not so long after Amazon introduced the marketplace, it offered the online platform to third- party vendors, asking in return for paying fees for the company service. The online market has started to attract more customers and meanwhile more vendors from all over the world to sell its goods to the American customers. The percentage of paid units sold by third-party vendors on Amazon platform is reached its maximum at the point of 54% in the second quarter of 2019 (Statista (h), 2020). The rationality of Amazon business model, which is based on economy-of scale strategy, can be explained as: a bigger amount of sellers means a larger variety and quantity of goods, the bigger quantity of goods means more customers, more customers means

(19)

15

more sellers. This business model helps to illuminate risks and maximize profits (Bourlier, 2020).

The biggest online retailer in the U.S. is known as Amazon, indeed it is the company’s marketplace. The company’s global marketplace has been used by 2 million sellers. Even though the company has 14 global online platforms, about 86% of marketplace sellers operate in the U.S. (Bourlier, 2020).

Amazon serves third-party sellers with hardware, logistics, payment system, along with customer base and data storage, possibly to buy additional services, including fulfilment and advertising. The company fulfilment centers provide third-party sellers with a storage, packing, shipping of their products, customer support, and potentials to scale the business (Amazon (a), 2020). For every seller earning, the company kept around 30% in fees, compared to 28 % in the year before and 19% in 2014. Third party sellers’ fees are making 21% of Amazon total revenue (Mitchell, Knox and Freed, 2020).

first-party marketplace

platform

• margin-based revenue on Amazons' goods sales

service for third-party

seller

•margin-based revenue on

Amazons' services sales

third-party marketplace

platform

•comission based revenue on

individual vendor's sales

Figure 5: Amazon online marketplace parties

Source: Author, based on the data of Amazon (a), 2020

(20)

16

Despite the generated commission’s benefits, the e-commerce giant is dominating in logistics business and delivered half of the domestic packages in the U.S. in 2020. Additionally, the company’s online platform started to be a big data base and product information for customers and for businesses. With the high level of penetration among shoppers, along with shipping infrastructure and marketing assistance, Amazon has been attracting third party sellers, which made 58% of physical gross merchandise on the online platform (Bourlier, 2020).

2.7. Amazon’s Chinese third-party sellers

Amazon sellers are located all over the world and import its goods from different markets to sell in others. Within the years, the company has been attracted, the Chinese sellers,

numbering about 38% of Amazon sellers, were in China in 2018 – the number went up from 24% in 2016. The research shows that many the U.S. sellers are in California and reached 22%

of vendors, which mostly offer Chinese goods to online customers (Kenney and Zysman, 2019).

According to Payoneer, which interviewed 900 Chinese e-commerce sellers in 2016, 62% of them operate in the U.S. market through Amazon, compared to the American online platform Wish, which provides services to 45% of respondents, and 40% of sellers use AliExpress company’s platform, which is based in China. According to the survey of the B2B online payment company, Chinese sellers admire Amazon as a trustworthy online platform for the purpose of leading their business. Payoneer have discovered that the leading categories for sellers to export in the U.S. are clothes and home goods (Saiidi, 2016).

3. U.S.-China Trade relationship and American protectionism

After China started implementing economic reforms in the 1970s, the world gained a faster growing economy and top trading countries. The country became the second largest economy in the world with the largest e-commerce market. Since China accesses WTO in 2001, U.S.- China trade volumes have risen from $25 billion to more than $700 billion in 2017. During this period, China has had the United States support for building new integration and

developing bilateral economic relations. However, during Trump's presidency, China, which was viewed as a mutually beneficial trade partner, was stated to be seen more like a

(21)

17

competitor, which led to protectionism policies and trade tensions from both sides (Meltzer and Shenai, 2019).

The presidency of Donald Trump started in January 2017 and ends in January 2021, during which the leader has known as a deeply divisive and categorical politician. In the first year of presidency, he called Nafta “a disaster” and initiated the withdraw from the Trans-Pacific Partnership(TPP), setting the pace for the next years international relations map redrawing for the U.S. (BBC, 2016). The 45^th U.S. president has been criticizing the politics of his

predecessors and made an „America First again” position promising great changes. The ex- head of the country was stated that the U.S. priorities should be put in the first place in any decision and field, whether it be trade, taxation, immigration, or foreign policy. Trump's fundamental priorities in the U.S. economy supported higher economic growth, individual jobs creation, along with corporate tax cuts, immigration restrictions, focus on energy and financial sectors, and what is important for the global business environment is trade protectionism (Dorsey, 2019).

According to Mr. Trump, the U.S. trade relationships must be focused on the national interests of the country and harmonized with the national security strategy. The politics was directed to create prosperity and more jobs for Americans by transforming American trade policy and shift the U.S. in the global system of production (Ciuriak, 2019). In spite of persistence of Mr.

Trump in changing American policies, the WTO organization made the report on September 15, 2020, where it announced: the United States has been violating the international trade by imposing additional ad valorem tariffs of 7.5% and 25% on Chinese originated goods in 2018 (Macias, 2020).

3.1. Protectionism and trade war terminology explanation

Protectionism is a policy, which is directed to protect the domestic market and industries against foreign competition through implementing tariff barriers and nontariff barriers, which could be, for instance, tariffs, subsidies, import quotas and others. A protective tariff of one country is a tax levied on another country imports of goods or services. The imposition of tariffs on imports are making foreign goods less competitive with goods produced in the domestic market, due to a need to pay import taxes, which increase the costs of goods. The

(22)

18

goal of tariff implementation is to restrict imports, protect domestic goods and services, raise federal government revenue, or use it as political leverage against other countries (Erdal Yalçin et al., 2017).

The term "Trade War" can be defined as international trade tensions between nations by imposition of tariffs or implementing any other trade barrier policies to protect its home market. The WTO gave four main reasons for the American increase of trade barriers on U.S.

imports from China: trade imbalance, creation of manufacturing jobs, intellectual property protection, and bringing back state-owned enterprises. Clearly, any trade war has a side effect on international trade volumes: Chinees exports to the U.S. decreased by 7% in 2018 and by 13% in 2019 due to the imposed tariffs. Trade uncertainty decreased the investments between the two countries and changed business export strategies (Bekkers and Schroeter, 2020).

3.2. Trade war and tariff imposition

The economic conflict between the U.S. and China started after the White House made a statement about Chinese practices in international trade. China was accused of unfair competition and technology stealing. The American government imposed four rounds of additional ad valorem tariffs on U.S. imports from China during 2018-2019: List 1, List 2, List 3, List 4. The American ex-president administration claimed that the increase of tariff rates would defend industries, reduce the trade deficit, create workplaces, and save American companies from unfair Chinese practices. The Chinese party had been reacting to U.S. tariffs by using “tit-for-tat” strategy and by leaving domestic tariffs on the U.S. imports (Benguria et al., 2020). It should be noted that , according to the US Trade Representative, the U.S. trade deficit with China continued to rise to a new record of 419.2 billion USD in 2018, however, had decreased to 345.2 billion USD in 2019 (Office of the United States Trade Representative (b), 2020).

(23)

19

List 1 targeted 34 billion USD of goods on July 6, 2018 and mainly touched aircraft, soybeans, and autos. The additional tariff increase on Lis t2 covered 16 billion USD of goods on August 23, 2018, affected industrial equipment like chemicals, plastic tubes, and others. From January to September 2019, List3, which accounted to 200 billion USD tariffs, targeted 5745 goods, a high share of which are assembled goods, as well as such consumer goods categories, such as groceries, electronics, housewares, goods made of leather and fur, apparel and clothing, accessories, construction materials, stationary, as well as home suppliers and sport categories of goods (Office of the United States Trade Representative (a), 2020).

List 4 was separated into two: List 4A and List 4B – originally targeted 300 billion UDS of consumer goods. List 3 and List 4 were supposed to cover almost all consumers goods that are coming from China. The first half of List A was set on September 1, 2019, and the second part of the List 4 was scheduled on December 15, 2019. However, after the Phase One Trade

List 1 List 2 List 3 List 4A List 4B

Effective Date

July 6, 2018 August 23, 2018

September 24, 2018

September 1, 2019

Cancelled December 15, 2019 Annual value of

Imports (Billion USD)

34 16 200 300

Initially Raised Tariff

Rate

25% 25% 10% 15% 15%

Adjustment of Initial Tariff Rate, Date

no no Jump from

10% to 25% on June 15, 2019

Decrease from 15% to 7,5% on February 14, 2020

no

Canceled Adjustments of Initial Tariff Rate

Jump from 25% to 30%

October 15, 2019

no no

Source: Author, based on the data Office of the United States Trade Representative (a), 2020

Figure 6: Tariffs on Imports from China

(24)

20

Agreement between the United States and China on January 15, 2020, the additional duty rate increase on List 4A goods went from 15% to 7,5% and the List 4B was cancelled. List 4 added consumer goods that were not mentioned in List 3, such as footwear, watches, electronics, music instruments, baby goods, additional apparel, sports, and game categories: 96,5% of total U.S. imports from China, and 67%, excluding List 4B (Office of the United States Trade Representative (a), 2020).

After the imposition of ad valorem tariffs on List 4A, which targeted 200 billion USD, the U.S. Trade Representative established the process by which U.S. stakeholders could submit a request of a particular product exclusion from the list and obtain tariff reduction on the imported goods from China. The request could be based on several reasons for exclusion: the product import is only available from China, the additional tariff rate would make severe economic harm to American interests or requested party, the product is important to “Made in China 2025” or other industrial programs of China (Office of the United States Trade

Representative (c), 2020). The exclusion process targeted about 36% of List 1 and List 2 and only 5% of List 3. As a result, the exclusions did not have a significant impact on the tariff rates on consumer goods imported from China (Office of the United States Trade

Representative (a), 2020).

(25)

21

Analysis and Discussion

4. Business parties affected by the U.S.-China trade war

The additional tariff could affect different parties, such as domestic business, foreign

suppliers, manufactures, or even domestic consumers. In the case of the U.S.-China trade war dispute, the main question is about “who pays tariffs” Chinese or American parties.

Considering the case of Amazon, all parties that sell or buy Chinese goods that were impacted by additional tariffs on American Amazon are interacting with additional duty costs, including non-U.S. vendors. However, these parties could pass tariffs on Chinese manufacturers or suppliers, in the case if they buying goods in the U.S. market and sell through American Amazon, or absorb the additional shipping costs by increasing the price of goods – pass tariff costs on American customers.

Mr. Trump has been making a clear answer to “who pays tariffs” on U.S. imports from China:

he claimed the United States Treaty would take billions of dollars from the tariffs by charging the country with unfair trade practices. Before the increase of the additional tariff rate from 10% to 25%, the politician made the statement on May 5, 2019, that China had been paying the imposed tariffs for already 10 months and were going to pay even more (Huppke, 2019).

Nevertheless, several researchers, who made their conclusions based on the real-time effects of tariffs on consumers and country welfare, have been supporting another opinion. The survey of National Retail Federation showed that 78% of consumers, despite Trump’s words, had a concern about the U.S.-China trade war impact on prices (NRF, 2019).

At the beginning, it should be mentioned that tariffs on exports from the domestic country could be neutralized by the devaluation of home currency, thereby making goods cheaper for the foreign buyer, what compensates higher tariffs and does not have an impact on Chinese export competitiveness. China was named as a currency manipulator by the U.S. Treaty Department on August 5, 2019. According to the department, the devaluation of the Chinese yuan was used as the tool of China to offset the impact of the trade disputed with the United States. The People’s Bank of China had been setting three phases of Chinese currency depreciation. The first one was in June 2018, the exchange rate U.S. dollar to Chinese yuan reached its pics in the third and fourth quarter during 2018. The second phase of the Chinese

(26)

22

yuan devaluation occurred in the beginning of May 2019 and the third one in the first half of August. It should be pointed out that the International Monetary Fund did not define any signals indicating questionable activity of the People’s Bank of China, related to currency manipulation (Daniel and Yan, 2019). The study about the depreciation of Chinese currency and the offset of the tariff impact on U.S. customers and vendors was not claimed. It could be explained by the estimation that Chinese manufacturers and suppliers adjusted the cost of goods to compensate currency devaluation. Additionally, if the Chinese parties used foreign currency in their operations and did not change the price, the devaluation of Chinese currency had not the impact on tariff adjustments (Braml, Steininger and Braml, 2019).

The supporters of the U.S. protectionism expansion had been claiming that Chinese businesses would pay additional tariffs. However, the Federal Reserve Bank has reported that the costs of goods from China did not fall. That means that Chinese manufacturers and suppliers did not adjust costs to decrease the tariffs affected by their American partners. This fact signifies the opinion: the tariff taxes have been paid by U.S. consumers, firms, and vendors, or any party, which imports from China to the U.S. tariff-affected goods. Moreover, the Center of

Economic Policy Research published the analysis result that the U.S. firms and consumers continued to burn U.S. tariffs in 2019 (Amiti, Redding and Weinstein (b), 2019).

Other evidences of the tariff impact on American business are found in the research made by the National Bureau of Economics shows that the heavily affected imports categories of List 3 with 25% of tariffs impacted the marginal costs of vendors, that had been working with U.S.

customers. The analysis shows that about 100,000 of the products, which total costs, including tariffs, accounts for half of the vendors’ marginal costs, had an increase of 20% in their price.

However, it should be said that retailers could adjust the margins of tariff-unaffected goods to partially compensate, the costs of tariffs on their imports (Cavallo et al., 2019).

The indicator of the additional tariff effect on the consumer would be a price increase.

According to National Bureau of Economic Researchers: “The average price, including tariff, of each affected good category in China had an immediate jump. The price increase was seen during the month of a policy getting into the force” (Cavallo et al., 2019). The research was focused on market transactions in USD, excluding the transactions between related parties and intrafirm trade. The researcher highlighted that the scale of the price jumps is slightly lower

(27)

23

than the tariff rate growth, which means that the price of the commodities had been increased to the level of paying additional tariffs. In other words, the total cost of imports from China had almost one-for-one growth with the additional tariffs increase. The price rise shows that the producer or merchant of goods did not take the tariff impact on its merchants by lowering product costs (Cavallo et al., 2019).

5. Application of the U.S.-China trade war side effects to Amazon e-commerce business During the first year of Donald Trump’s presidency, Amazon.com had been making

statements about the negative impact of tariffs on its and other domestic company business, pointing to the ex-president “America First” agenda and actions to create domestic company advantages over foreign competition (FRPT Research (b), 2017). Amazon claimed in its annual report’s risks issues about the “trade and protectionism measures”, that trade barriers could hurt its company capacity to grow, however, did not report any figures of the exact impact of the trade war on the business activities and company’s earnings (Amazon (b), 2017).

In fact, the importance of trade war issues for the company was clarified after spending 4.2 million USD on lobbying campaigns in the second quarter of 2019 to protect its Chinese third- party merchants and global supply chains. The lobbying issues were directed to tariffs, policy, and procedures, covering the third wave increasing tariffs and the incoming fourth wave of tariffs in the third quarter (Center for Responsive Politics, 2019).

The impact of the trade war also was seen on the prices of Amazon shares. After the 15%

tariffs on List 4A were imposed on September 1, 2019, Amazon’s price of shares, from its 52- week highest price on July 11, 2019, decreased by 9.6% on September 5, 2019 (Newstex, 2019).

The U.S.-China trade war could only affect the part of Amazon businesses, which interact with Chinese imports mentioned in List 1, List 2, List 3, or List 4. Amazon has been

interacting with foreign suppliers and providing its services to foreign sellers. The American e-tailing leader does not have any restrictions on the product origin or seller-based country.

Moreover, Amazon.com marketplace has been characterized as a big selling platform, where a significant part of the merchandise is Chinese origin products. The research of Bank of

(28)

24

America assumes that one fifth of Amazon’s first party sales is based on goods imported from China, compared to one fourth of the third-party sales (Wiggington, 2018).

The connection of Amazon marketplace with U.S. imports from China is given by the fact of a significant share of the online platform third-party sellers are from China, which have been selling Chinese goods. The cultivation of sellers in China that sells to Amazon.com started after the company set up ocean shipping operations in 2013, which gave the opportunity to send goods directly from the Amazon’s distribution system in the U.S. from China. The company launched the Chinese language webpage option in 2015, which also increased the accessibility for Chinese business users. The research of Amazon’s seller digital payment service company Payoneer, which interviewed 900 e-commerce sellers in China, found out that 62% of respondents are using Amazon marketplaces for selling Chinese goods, out of which 91% were using American platform of the company in 2016. Based on the research results, around 56% of all online vendors in China are selling goods on Amazon.com. It should be noticed that one seller could distribute its goods through several channels in different countries (Payoneer, 2016).

Moreover, the Amazon has admired the contribution of the Chinese sellers to the 5^th annual company’s Cross-Border Summit Event in Guangzhou, China, in 2019. The company claimed that it helped more than “several hundred thousand” of Chinese sellers to reach customers globally. The number of sellers that uses Amazons’ online platform, who attended the summit was more than 7 thousand visitors and 20 thousand of online Chinese participants. (Hu, 2019) According to the analytical agency of Amazon’s online platform Marketplace Pulse, about 49% of the top 10,000 third-party sellers are based in China, the yearly sales of each seller exceeds 1 million USD. The number of active sellers on Amazon.com is more than one

million, however, more than half of them sell a few products a month. Additionally, the online marketing agency claimed in its report of 2020, that around 37% of all third-party sellers are based in China and 50% of them live in the U.S.. The explanation for this market analysis results: Amazon.com is the most efficient way to reach the Americans shoppers for Chinese retailers, which has direct-to-customer selling platform and does not include physical involvement (Marketplace Pulse, 2020).

(29)

25

6. Impact of the U.S.-China trade war tariffs on Amazon consumer goods

The variety of businesses on American Amazon platform, which covers almost all types of consumer goods from fast food to electric vehicle, divided between 36 product categories.

The imposition of additional ad valorem tariffs on the four lists of goods on U.S. imports from China during 2018 and 2019 had different coverage of consumer goods and categories of American Amazon.

List 1 and List 2, which covered 34 and 16 billion USD of goods from China, respectively, mainly affected capital and intermediate goods for further U.S. business and service usage.

List 1 has consumer goods categories: computers, machinery, and equipment, electrical equipment. List 2 did not cover consumer goods except for a small portion of electrical and machinery equipment imports. The first two lists of tariffs impacted largely supply chains of businesses that have been using cheap raw materials from China and could not be easily substituted with the import from another country. The additional tariffs on the last two lists of imports have been impacted finish goods (Figure 6).

List 1 List 2 List 3 List 4A List 4B

Effective Date

July 6, 2018 August 23, 2018

September 24, 2018

September

1, 2019 Decem ber 15, 2019(ca ncelled) Annual value

of Imports (Billion USD)

34 16 200 300

112 Cancell ed Quarters(Q)

affected 2018-2019 by ad valorem Tariff rate increase (%)

Q3 2018 – Q4 2019 by 25%

Q4 2018 – Q2 2019 by 10%

Q3 2019 – Q4 2019 by 25%

Q3 2019 – Q4 2019 by 15%

Cancell ed

Source: Author, based on the data of Office of the United States Trade Representative (a), 2020

Figure 6: Tariffs on Imports from China and affected quarters by import duties imposition

(30)

26

The consumer finished goods categories, which the company offers on Amazon.com platform, as well as parts and materials for manufacturing have been an issue of 10% additional tariffs on the List 3, which came into effect on September 24, 2018 and were increased to 25% from June 15, 2019. List 3 of U.S. imports from China have been under 10% additional tariffs, which were affecting the fourth quarter (Q4) of 2018, the first (Q1) and the second quarter (Q2) of 2019. The increase of additional tariff rate to 25% on List 3 has been affecting the consumer goods categories from the third quarter (Q3) of 2019. According to the research published by Congressional Research Service, List 3 reached about 40 billion USD consumer goods, based on import volumes in 2017 (Brock and Hammond, 2019). The most impacted categories by List 3 announcement have been communications, computers, electrical and machinery equipment, and furniture (Temple, 2019). China has been dominating in some import’s categories: there are about 83 products, 90% of which were only Chinese export in 2016 (Freund, 2016).

0 10 20 30 40 50 60 70 80 90

% of total U.S. import

Categories of imports List 1 List 2 List 3 List 4A List 4B

Source: Author, based on the data Congressional Research Service by Brock and Hammond, 2019

Figure 7: Percentage of the U.S. consumer goods total import hit by tariffs on Chinese goods based on 2017 Values

(31)

27

The 15% of the additional tariff on U.S. imports from China came into force on September 1, 2019, targeting List 4A and were decreased to 7,5% in 2020, thereby the implementation of List 4, hit the end of Q3 2019 and Q4 2019. The separation of List 4 was announced on August 13, 2019, and the cancelation of List 4B was not certainly known until December 13, 2019 (Office of the United States Trade Representative (a), 2020).

List 4A hit extremely Chinese apparel goods, which has the value of approximately 25 billion USD out of 88 billion USD of total U.S. apparel imports in 2017. The other categories that have been targeted by 15% tariff: computers of 10 billion USD, 10 billion USD’ worth of consumer electronics, 9 billion USD of toys, sports, and other goods. The canceled List 4B was planned to target 47 billion USD of smartphones and 38 billion USD of computers (Figure 7). The implementation of List 4B would mean 96,5% of U.S. imports covered by tariffs (Brock and Hammond, 2019).

0%

5%

10%

15%

20%

25%