Let’s face it, we all knew that Donald Trump’s return to the White House would be…eventful. And he’s wasting no time in igniting the Trump 2.0 era with the announcement that he’ll be hiking tariffs on imports from China, Mexico and Canada, which together accounted for more than 40% of imports into the US in 2024.
That could mean a global trade war, to add another layer of strife onto the geopolitical chaos we’ve all endured over the past few years. What it means for certain payment businesses is higher costs of manufacturing hardware and other goods. And what that means for consumers is higher prices at the checkout.
During Trump’s previous time in office, he applied lower and less punitive tariffs on US trading partners. In the Trump 2.0 era, the gloves are most definitely off. Most goods imported from Canada and Mexico are set to have 25% tariffs imposed, while Canadian energy imports will face a 10% tariff. There will also be a 10% additional tariff on all goods from China, which was scheduled to take effect from 4th February 2025.
China-based POS manufacturers will be affected
Insulated wire, computers, cars, telephones, broadcasting equipment and electric batteries are just some of the components and goods that will be affected in a tariff war with China. That means China-based POS device manufacturers will be hard-hit, as will the vendors they supply in the US. As an example, if a Chinese-made POS device costs $250 to manufacture, it’s now facing a 10% tariff of $62.50 to be imported into the US. And vendors supplying merchants in the US could be forced to hike up monthly POS rental or subscription fees to recoup that cost.
In fact, any Chinese-based manufacturer making payments-related hardware will likely be affected by these new tariffs, and their partners in the US will be scrambling to recoup the higher costs elsewhere.
It seems inevitable that consumers will face higher prices as sudden tariff hikes like these invariably lead towards higher inflation. According to Capitol Economics, the US annual rate of inflation could increase from 2.9% to as high as 4% because of the newly-announced tariffs. Meanwhile, J.P. Morgan economists point to lower US economic growth, and elevated stock market volatility if the tariffs go into full force.
Already, the US Postal Service has announced it has suspended accepting incoming international parcels from China and Hong Kong until further notice, threatening the business models of e-commerce giants like Shein and Temu. The announcement comes just a few days after President Trump signed an executive order that terminated the “de minimis” exemption, a long-established rule that allowed anyone, including exporters, to ship packages worth less than $800 to the US without paying duties or needing to undergo inspections.
Cross-border payment volumes are in rude health
The good news is that global trade corridors are still open – for now. And the following juicy data chunks point to cross-border payments that have not just bounced back after Covid, but in many areas are now surpassing pre-pandemic levels:
Another notable factoid from the Visa research: consumer cross-border payments are driven by the hunt for greater product availability, better quality, and lower prices. However, while US consumers are laser-focused on product availability and price and will shop abroad based on those two factors, shoppers in China and Hong Kong are more likely to buy from foreign merchants to get better-made and better-quality products.
Cross-border payments are complicated enough without a tariff war
Zoom out and cross-border payments are growing in response to an improvement in macroeconomic conditions. At first glance it’s a great picture and is a mouth-watering incentive for merchants trying to stretch beyond their native borders.
But zoom in, and you’ll see cross-border payment flows barely held together by sprawling webs of disconnected and fragmented transaction pipelines, systems that can’t talk to each other, and payment providers struggling to offer the localised payment methods that can mean lower fees for merchants.
These swathes of complexities are afflicting cross-border commerce, already held back by expensive fees, a lack of transparency and transaction bottlenecks caused by different clearing and settlement time zones around the world. According to Visa, it already takes 55% longer for cross-border payments to be settled, relative to domestic payments in the UK and the US.
Think about all the transactions that go in the cross-border payment bucket. From the low-volume and high-value enterprise transactions (for example multi-million-dollar M&A fees, bulk manufacturing and supply chain payments), right through to the high-volume, low-value end of the scale (like the daily millions of individual Amazon or ecommerce marketplace orders, airline or hotel payments).
When selling cross-border, merchants must grapple with one gnarly challenge after another. How to ship and deliver abroad? How to monitor supply chain and distribution networks, manage cashflow, inventories, and stay on top of compliance obligations like scheduled reporting? That’s before you even figure out the payment side of things and how that links into tax and accounting needs. Remove these logjams and payments get faster, simpler and easier to manage – and revenues grow too, not just for merchants but for the payment providers that service them.
But add more friction – like tariffs delaying e-commerce orders from China as outlined above – then merchants will face a wave of chargeback claims from disgruntled customers, demands for refunds, and even more pressure on razor-thin profit margins.
While the affected countries are scrambling to find compromises and workarounds, it seems painfully inevitable that tariff retaliation has not been ruled out.
How much more complex and expensive cross-border payments will become if onerous trade tariffs are thrown into the mix? It’s too early to tell, but one likely outcome could be consumers turning in greater numbers to the neobanks that offer lower FX fees on cross-border purchases.
In the meantime, we can only hope that somehow, cooler heads prevail and are successful in averting a trade war that the world can ill-afford, now more than ever.
Will a shift in cross-border payments make you rethink your strategy? Let’s talk. Email [email protected] to find out how we can help you navigate these changes with a tailored PR plan.