China’s Mixed Impact On US SMEs

Small business optimism is up. That’s good news, especially following a significant dip in SME confidence of the U.S. economy seen earlier in the summer.

According to the latest figures from the National Federation of Independent Business, SMEs’ optimism rose modestly in August, as outlined in the firm’s new Small Business Optimism Index published this week.

But there’s a catch: Most of the interviews with small business owners conducted in August used to gauge optimism levels were conducted before China’s major stock market flop late in the month — a drop that saw shares plunge by 9 percent in a day, leading markets across the globe to tumble. In the U.S., for instance, the Dow saw a 1,000-point nosedive in only a few hours and recovery since has been unstable.

Large public corporations certainly felt the heat from the market struggles. But what about small businesses? The answer may not be what you think.

According to University of Pittsburgh Katz Graduate School of Business Professor Ravi Madhavan, small businesses in the U.S. are mostly importers when it comes to U.S.-China trade and are not likely to be impacted too much from China’s slowing economy and market bumps.

[bctt tweet=”U.S. SMEs are mostly importers when it comes to U.S.-China trade and are not likely to be impacted too much from China’s slowing economy.”]

In fact, he said in a recent interview with the Associated Press, SMEs in the nation could actually see more competitive prices from their Chinese suppliers — especially following the devaluation of the Chinese yuan, which played a significant role in the stock market drop there, analysts said.

One small business, Phoenix Faucet, recently told CNBC that it is likely to have more leverage with its Chinese business partners with importing goods from the country. “We will have the ability to negotiate” if and when new deals are made, said Manager Raymond Arth of the faucet importer and manufacturer.

National Small Business Association Vice President of Public Affairs Molly Day told CNBC that the decline in yuan valuation will likely be beneficial to small business importers.

“They can purchase more products and services cheaper, not just from China, but even other surrounding countries,” she said. “Their primary competitors in the region will face downward pressure.”

Not All Easy Going

Reports said there are some concerns among small businesses, however — most notably among SMEs that sell raw materials. Jupiter Aluminum Corp., for example, told AP that its main concern is that China will ramp up its exports of aluminum to the U.S. at cheaper costs, looking to sell off its surplus amid slowing demand at home. Analysis shows domestic demand for aluminum, steel, coal and copper has dropped, leaving some businesses in these industries abroad to worry that China may dump these goods in their markets at cheaper costs.

CNBC said that U.S. exporters that are part of the “Made in America” campaign are likely to get double-slammed due to a rising dollar and the weakening yuan as business buyers take advantage of cheaper Chinese deals.

[bctt tweet=”Exporters that are part of the “Made in America” campaign are likely to get double-slammed due to a rising dollar & weakening yuan.”]

“If you are being undercut significantly by foreign competitors in terms of labor casts and wage rules that we have here in America, there is a challenge to compete with Chinese companies for small businesses,” said Day, adding that the yuan devaluation “won’t help” small suppliers in the U.S.

The latest data, however, suggests that demand for exported goods from China is actually down across the globe. Overseas trade dropped by 5.5 percent in dollar volume in August compared to the year prior, figures published Monday (Sept. 7) said.