(Bloomberg)—The latest casualty of President Donald Trump’s trade war? $1 yoga pants.
Trump’s order that the U.S. Postal Service withdraw from an obscure 192-nation postal treaty threatens to hit American shoppers who have grown used to bargains on platforms such as eBay Inc. (No. 4 in the Internet Retailer 2018 Online Marketplaces) and Amazon.com Inc. (No. 1 in the Internet Retailer 2018 Top 500).
Because of the postal treaty, shipping the goods directly to consumers was relatively affordable. When the U.S. pulls out, thousands of listings from China-based companies hawking dirt-cheap consumer goods will likely disappear.
The treaty sets fees that national postal services charge to deliver mail and small packages from other countries, and gives poor and developing markets lower shipping rates than developed nations. The agreement—and another one that China and the U.S. signed in 2011—has essentially given Chinese merchants a $170 million annual subsidy to ship products directly to American homes.
“Chinese sellers on eBay and other platforms may disappear, or at the very least they will not find it so easy to sell to Americans anymore,” said Gary Huang, chairman of the supply chain committee for the American Chamber of Commerce in Shanghai. “This has been a big advantage for them for many years and how they’ve beat out the American seller on their own turf.”
$1 yoga pants
The postal loophole can be seen in the shipping options offered by Chinese eBay sellers and others on major e-commerce portals.
On Thursday, hundreds of eBay sellers from China advertised women’s workout leggings, including ones for little as 76 cents that could be purchased instantly. The seller, China-based Webstainless, has racked up more than 21,680 positive reviews from buyers in the last 12 months, according to the e-commerce site. Webstainless offers free shipping to the U.S.
On AliExpress, Internet giant Alibaba’s e-commerce portal for international buyers, shipping is free if a pair of $10.29 yoga pants are transported via ePacket, the name of the subsidized service by the U.S. Postal Service. Other shipping options from companies like FedEx Corp., United Parcel Service Inc. or DHL Worldwide Express range from $40 to $60, raising the cost of the cheap pants so much that a buyer might as well get them from a store or seller in the U.S.
Trump’s directive to eliminate the postal discounts could potentially raise costs for Alibaba Group Holding Ltd., while helping FedEx and other international shipping companies. Alibaba owns and operates Taobao and Tmall, which hold the No. 1 and No. 2 spots on the Internet Retailer Online Marketplaces.
Any changes to international postal rates potentially disrupts cross-border e-commerce, the sale of goods from a retailer in one country directly to consumers in another. That business, enabled by platforms such as Amazon, eBay and Alibaba, is expected to reach $1 trillion by 2020.
Representatives for Alibaba didn’t respond to requests for comment. Alibaba rival JD.com Inc.’s (No. 5 in Online Marketplaces) logistics arm said it was looking into the potential impact. Amazon and EBay, through spokespeople, said they were reviewing Trump’s memo and declined to comment.
The shipping rate under the postal treaty can be a fraction of what it costs to send the same item from the U.S. to China—making returns very difficult—and it can be lower than what it costs to ship an identical product within the U.S.
Amazon’s prices illustrate the gap: standard shipping for an iPhone case from China to a New York address is $4.99, while from a seller based in the U.S. is $5.99. The difference may not seem like a lot, but added up over millions of low-cost consumer items, its effect has been a disadvantage for American retailers on e-commerce portals.
“American sellers simply cannot compete,” said Huang, who’s also founder of consultancy 80/20 Sourcing. “It seems like Trump wants to level the playing field and one outcome is that American consumers will have less access to that really cheap stuff.”
American retailers cheer
The subsidized ePacket service limits packages to 2 kilograms (4.4 pounds) and less than $400 value. Chinese sellers estimate shipping through the services take 10 to 20 days from China to the U.S.
American companies have cheered Trump’s plan to withdraw. “This outdated arrangement contributes significantly to the flood of counterfeit goods and dangerous drugs that enter the country from China,” Jay Timmons, the president of the National Association of Manufacturers, said in a statement.
UPS, which along with other private couriers stands to gain if the subsidized service is removed, said that withdrawal was “the right step.”
Under the treaty’s framework it takes a year for a country to withdraw, during which rates can be renegotiated.
“It’s been an unbalanced deal,” said McDavid Stoddard, a director at Beyond, a shopping app that connects foreign brands to Chinese consumers. “The U.S. Postal Service has been complaining about this for a while and we’ve always doubted the long-term viability of this channel.”