Sourcing Strategies by Tom Russell for Furniture Today
Some 15 years ago this summer, talk was heating up about an antidumping case being brought against China’s wooden bedroom furniture industry. At the time, there were plenty of skeptics. They believed that duties would never take effect in an industry dominated by importers, as case goods plants across the country were closing due to competition from low cost Chinese imports. This level of injury from imports indeed was the inspiration for the case and what ultimately made it a reality for the industry, placing duties as high as 216% on the category.
What made the case so interesting and relevant was that most items facing antidumping duties up to that point were commodities – things like ammonium nitrate from the Ukraine and clad steel plate from Japan – vs. finished goods like Chinese-made wooden bedrooms. So when duties eventually went into effect in early 2005, it took the industry by storm. Even though the average duty was just over 7%, the issue caused a mass exodus from China to Vietnam, where most wooden bedroom is still made today.
All this comes to mind as the U.S. enters what could be the biggest trade war with China in memory. In the past few months, there has been talk of the U.S. imposing tariffs of about 25% on a wide mix of products. Again, this included mostly commodities that go into finished goods and that many consumers never touch or see. During this time, many industry officials doubted furniture would be affected. Even when President Trump first got elected and talked about imposing tariffs on China, many in the industry said this would never affect the furniture industry, only commodity goods like steel or big machinery.
The initial list that came out last month and went into effect July 6 did not include residential furniture. Yet that changed July 11 when the Trump Administration announced an additional $200 billion tariffs in goods, including most furniture coming out of China.
While none of this is final, the industry once again faces a harsh reality. If duties averaging 7% shifted most wooden bedroom production to Vietnam, what would happen with 10% tariffs not just on Chinese-made furniture, but also on raw materials coming out of China ranging from fabrics to MDF and particle board.
Many believe the industry – which also faces ongoing cost pressures on materials and transportation - could not face a 10% tariff on Chinese-made goods. Thus the short answer to the issue would be to shift sourcing to other nearby countries.
But should the tariffs become a reality, this could be more painful than the shift with wooden bedroom furniture. Why? Simply put, other countries don't have the capacity of China to absorb all the extra production.
Consider that in 2017 China shipped $13.6 billion in furniture to the U.S. market. This compares to $3.8 billion from Vietnam and about $1.4 billion from Malaysia and Indonesia combined. Other countries such as Mexico and Taiwan shipped another $1.5 billion to the U.S. in 2017. Could these countries take on additional production? Most likely yes, as could India, which shipped about $316 million in furniture to the U.S. last year.
The question is which countries can equal China’s production capacity, manufacturing technology and overall infrastructure? That will be the question the industry will face if the tariffs take effect.
What does this mean to your business and how will your company address the issue?