China’s e-commerce market is experiencing high growth. The World Economic Forum (WEF) revealed that “42% of global e-commerce is happening in China.” In contrast, the U.S accounts for only 24% of the global e-commerce market. A decade ago, the East Asian country’s share of the market was less than 1%, per the WEF revelation.
These statistics are evidence that China’s booming e-commerce market has come of age. An over-arching explanation for this explosive growth is the number of e-commerce retailers that offer a massive selection of items at bargain prices. By throwing free worldwide shipping into the mix, the sites have also begun to attract bargain hunters and savvy shoppers from all over the world.
Everyone Wants a Deal
The lure of cheaper goods on websites like Wish.com has seen American shoppers embrace Chinese products in droves. Theatlantic.com mentioned that around 175 million packages with overseas origins had been delivered to American shoppers by the U.S Postal Service between January and March 2018 alone. This number represents an increase of over 80 percent from the 97 million delivered in the same period in 2013.
Competition is Tough
While the e-commerce growth is a considerable advantage for China, U.S importers and manufacturers have felt the heat from China’s continued growth in the online market. “If you’re a manufacturer in the United States, you’re not happy about this, because you can’t make anything as cheaply as the companies in China can,” said Juozas Kaziukenas, founder, and CEO of Marketplace Pulse, to The Atlantic.
Cheap labor, lenient labor requirements, investment in industrial robots, and their supply chain make it a lot cheaper to produce goods in China than in the U.S. Also, like every consumer, Americans want merchandise for the lowest prices which something Chinese e-commerce stores seem to offer.
U.S companies must find ways to compete with cheap Chinese products. This reality has led many businesses to attempt to cut production cost by outsourcing jobs to China. Others are choosing to order imported products from warehouses owned by Wish, Amazon, among others. Despite these efforts, U.S businesses still find it hard to match China’s competitive pricing. Importers also suffer the same fate, as U.S shoppers often snub them in favor of Chinese e-commerce stores.
Sales Tax Takes a Hit
Beyond luring customers with the promise of lower prices, Chinese online retailers have also created an internet sales tax issue. Most of the sellers on these platforms are third-party sellers; thus, online retailers like Amazon cannot collect and remit sales taxes on goods sold in nearly all states. Some U.S states are looking to challenge this in court.
However, even if the courts demand that third-party sellers pay taxes on items sold, analysts opine that it would be hard to enforce such laws against foreign businesses. “A lot of states say a lot of these Chinese companies are not paying taxes at all because they are foreign entities and they don’t care,” Kaziukenas told Semuels. Some U.S consumers are also worried that online retailers like Wish and Aliexpress contribute to unethical behavior by providing an avenue for third-party sellers to sell fake and knockoff products.
The influx of Chinese digital companies in the marketplace has created benefits for consumers, but issues for those who try and compete with them. Increased buying options and lower prices have appeased the former and the matters of job loss, and loss of revenue are plaguing the latter. All things considered, U.S. companies will have to create new strategies and desire for their products to compete with the lure of a cheaper price tag.