Tit-for-tat trade war now includes furniture

2018 tariffs-web

October 2018—

For months, furniture managed to dodge President Trump’s list of Chinese-made products subject to tariffs. Not anymore.

Trump last month moved forward with his administration’s much-threatened decision to impose tariffs on an additional $200 billion in Chinese goods that includes furniture. The new tariffs will almost certainly drive up the cost of Chinese-made furniture and a range of other products ahead of the holiday shopping season, though it’s unclear how much.

Unlike tariffs imposed earlier this year that focused more on supply chain materials, the latest tariffs focus almost entirely on finished products. In addition to furniture, the newest tariffs cover boats, televisions, and copper. The list also includes metals used in the production of mattresses.

This third list of tariffs comprises about half of all goods imported from China to the U.S. Tariffs increase the cost of goods to American consumers, and lead to higher prices for the same items from domestic producers and imports from countries that have avoided tariffs.

As has been the case in this tit-for-tat trade war, China hit back. Within 24 hours of the White House’s Sept. 17 announcement, China imposed its own tariffs of up to 10 percent on an additional $60 billion in American goods, slapping higher border taxes on nearly all U.S. exports to China.

The White House’s announcement was not unexpected, said Chris Andresen, senior vice president of Dutko Government Relations and a lobbyist for the Home Furnishings Association. “When you look at what the president campaigned on and how he’s handled world trade the last nine to 12 months, this was expected,” said Andresen. “It wasn’t a matter of if, but when.”

In addition to the Home Furnishings Association, Andresen said several other industry groups had been keeping a close eye on the latest round of tariffs. The largest of the groups, the conservative-leaning U.S. Chamber of Commerce, pushed hard for Trump to drop the tariffs, arguing American businesses and consumers are bearing the brunt of the emerging global trade war.

A preliminary list of possible products on the White House’s radar first appeared in July. While furniture remained on the final list released Sept. 17, other products were spared including smartwatches, bicycle helmets, children’s playpens, some chemicals, and health and safety devices.

Trump said he imposed the latest tariffs to pressure China on business tactics that he said unfairly disadvantage American businesses. In announcing the new tariffs, Trump said the U.S. trade gap with China—the net between imported and exported goods between the two countries—was too large. “We can’t do that anymore,” he said.

The impact of these tariffs will vary depending on the furniture store and the products they sell. “Obviously, the tariffs will hit those retailers that sell primarily imported goods from China more so than someone who is selling a predominantly North American product line, Andresen said.

There was hope Chinese and American leaders could hammer out their trade issues at the annual Group of 20 meeting of world economic powers scheduled for later this year in Argentina, but Andresen said China’s swift reaction with their own tariffs in response to Trump’s leaves little room for bargaining.

“(The tariffs) are going to have to have a big impact on the American consumer for the president to take a second look,” Andresen said. “That might not happen until early next year.”

HFA’s membership includes retailers of all sizes, from local-Main Street independents to top 100 regional and national companies, so tariffs impact members differently. Sharron Bradley, the Association’s CEO, said a 25-percent tariff would negatively affect a segment of HFA members in the short-term (and the long-term affects are unknown), but added these proposed tariffs go beyond a furniture industry issue; they’re an economic issue.

Bradley said the tariffs outlined on all three lists are a bigger issue because they affect the everyday products consumers buy or the components that go into making them, from home furnishings, food and clothing to shelter and transportation.

“When the cost of those everyday items increases, consumers’ disposable income decreases,” said Bradley. “The products that our members sell are purchased with disposable income. These discretionary purchases are immediately impacted as consumer confidence wanes and they pull back on more expensive items.

“The Association supports holding our trading partners accountable; but we don’t think these tariffs are an effective solution,” said Bradley.

So far, economists have found no broad negative or positive effect from earlier tariffs imposed on China and on aluminum and steel imports from several countries, but rather in select categories.

For example, the price of washing machines in the U.S. increased about 20 percent following U.S. tariffs on metal imports, and the prices for all appliances in general jumped 7 percent.

A government collects tariffs as a form of import tax. Tariffs can be effective in narrow cases to offset government subsidies that create cheap exports to the U.S. and others to boost economic growth, a practice sometimes called “dumping,” or to protect endangered domestic industries that have national or cultural importance. Canada, for instance, imposes high tariffs on some imported dairy products as part of price supports for its farmers. But tariffs are also used as a trade weapon, in which a country heavy on imports, like the U.S., attempts to use the surcharge to force policy changes that diplomacy has failed to reach.

Trump has tried to use tariffs to penalize several countries this year, including Mexico, Japan, Canada and members of the European Union, hoping the threat of driving up costs on their products will make them more open to his demands. The tactic has had mixed success.

Overview of the tariff lists

There are thousands of products spread across three tariff lists affecting everything from soybeans, mackerel and thermometers to furniture and textiles. There are just as many opinions about how these tariffs will affect the economy, trade relations and the furniture industry. For specific details visit the Office of the U.S. Trade Representative at ustr.gov.

List 1: valued at $34 billion worth of imports; 25% tariffs began July 6; includes industrial parts, vehicles (planes, trains and automobiles and their parts), chemicals and more

List 2: valued at $16 billion worth of imports; 25% tariffs began August 23; includes industrial chemicals used to create plastic goods; motorcycles, speedometers and antennas; resins; measuring equipment from everything from electrical currents to liquid supply and more

List 3: valued at $200 billion worth of imports; 25% tariffs begin TBD; includes wood products (wood, plywood, boards, building materials); textile materials (wool products, yards and threads, fabrics); metal articles (precious metals, articles of metals, fasteners, other articles of various metals, iron, steel, copper, nickel, aluminum); consumer products including furniture and appliances

The United States and China have the largest trading relationship between two countries—about $650 billion in goods and services annually.