ParcelHero’s head of consumer research, David Jinks, looks at how it will cost significantly more to mail to America and absorb the impact of new US duties next year.
Britain may be looking to the USA as its target market in a post-Brexit world, but trading conditions are rapidly worsening for UK retailers selling to the USA.
The USA is many British companies’ second -largest market after the EU, and many more will be looking at increasing their US sales next year. But there are three significant new factors that will actually make UK sales to the US considerably less profitable in 2020.
The new prices and tariffs are:
• New US duties of 25% on traditional British goods such as clothing and whisky;
• A potentially massive rise in the price of mail such as packets below 2kg (4.4 lb) entering the USA;
• US state sales taxes, which previously didn’t apply to overseas sellers, increasingly imposed on UK goods.
UK online sellers to the USA are already beginning to feel the bite of a raft of new taxes and price increases. Firstly, President Trump has just slapped US$7.5bn of new tariffs on a long list of products entering the USA in a tit-for-tat for what he claims are illegal subsidies the EU makes to Airbus. Britain’s exporters are subject to this tax while we remain in the EU, and as Airbus has 25 sites in the UK, manufacturing components such as wings, Trump has no intention of making a special exemption for British companies.
From last Friday (October 18) UK clothes manufacturers, from Saville Row suits to Scottish woolen knitwear, have seen a 25% tax imposed on their products as they enter the country; and other traditional British products such as Scotch Whisky are also caught in the same new tax regime.
This means, for example, a typical Saville Row suit costing £5,000 (US$6,474) will now actually cost £6,250 (US$8,093) in the USA. Specialist UK retailers will either have to somehow swallow the extra cost themselves or seek to impose it on their customers and probably lose sales.
The second significant problem is a scheduled massive jump in mailing costs to the USA for letters and packets. Last month, the USA won an epic battle with the UPU for the right to set its own rates on larger letters and packets mailed into the country from overseas. President Trump successfully argued that a number of countries – particularly China – are massively underpaying to ship parcels into America; and that the USA was effectively subsidizing foreign e-commerce traders. Trump claims the win will save the USA between US$300m and US$500m per year.
USPS still has to finalize what its rates will be under the new system, but, depending on what country you are mailing to the USA from, the price could go up enormously. The bulk of the changes will apply to letters and packages under 2kg; this captures light e-commerce purchases such as earrings, rings, and cuff links.
Of course, UK sellers are already paying a much fairer rate than Chinese traders to access the US postal system, but now the USA is able to increase its international access rates to 70% of its domestic packet mailing rates – with the option to increase 1% every year up to 80%. It’s small wonder companies like eBay, Etsy, Amazon and Alibaba have raised concerns about the impact. Importantly, this increase won’t apply to international couriers shipping packets into the USA, such as ParcelHero’s selection of services.
The final new hurdle for UK sellers to the USA is that last year a controversial court ruling allowed US states to start charging sales taxes on items purchased online from overseas. This tax bombshell coincided with the majority of American states introducing ‘marketplace facilitator legislation’, which means sales taxes are automatically taken on state sales by the likes of Amazon. For example, South Dakota’s sales tax of 4.5% has added an extra US$9 to a US$200 item. Add any relevant local sales taxes and the average overall sales tax is around 6.5% in total. That means a US$200 item bought from a British online marketplace trader selling on Amazon.com or eBay.com will now cost their American buyer around US$213 – and another £325 on that typical Saville Row suit if ordered online.
ParcelHero has released a new report that reveals the sales tax thresholds of every state that has imposed a distance sales tax; and key details on how US states plan to pursue overseas companies. Read the full report here.