Tariff threat becomes reality

In the months since President Donald Trump enacted a 10% tariff on $200 billion in Chinese-made imports—including furniture—the casual furnishings industry has held its breath over the possible threat of that penalty increasing to 25%.

As trade talks between the Trump administration and the Chinese government continued, the first deadline for that increase was extended. But with those negotiations reaching an impasse in early May, Trump enacted the increase on May 10 with the promise at this writing of a 25% tariff being applied to an additional $300 billion in goods.

“We support the administration’s efforts to deliver a meaningful trade agreement that levels the playing field for American businesses and workers. But the latest tariff escalation is far too great a gamble for the U.S. economy,” National Retail Federation President and CEO Matthew Shay said in a statement in response to the increase and threat of additional penalties. “Slapping tariffs on everything U.S. companies import from China—goods that support U.S. manufacturing and provide consumers with affordable products—will jeopardize American jobs and increase costs for consumers.”

Some in the casual industry began to feel the effects of the increase almost immediately.

“An additional 15 points is a game-changer because that will impact the industry from a wholesaler standpoint and a manufacturing standpoint,” says Tom Murray, president, NorthCape. “What it does first is seizes things up—I’ve already received cancellations for things that haven’t even hit the water. People are reacting in a knee-jerk way, and you can’t run an efficient business like this.”

The tariff applies to goods shipped after the May 10 deadline—anything in transit before is safe from the penalty. For the casual industry, that means that most orders for the current season are exempt from the increase.

“In the short-term, the effect of the latest tariff negotiations will have missed us because of the outdoor shipping cycle,” says Mike Gaylord, vice president, Agio. “Most of our retailers have already been shipped to and received their 2019 orders—so no effects short-term.”

That was a point some manufacturers were quick to make, notifying customers of available inventory that isn’t subject to the tariff increase.

“With all of the fluctuation within the U.S.-China trade negotiations, Zuo will not be changing our wholesale pricing for at least 30 days,” Zuo CEO Luis Ruesga said in an email statement sent on May 10. “We have over $18 million in stock at our warehouses in pre-25% tariffed goods, so please let your customers know that the best deals are available today and to order before pricing goes up in the future.”

Murray says the situation is similar for NorthCape. “We’re going to see a pop in business this Q2 because we have a lot of domestic inventory,” he says. “But that’s short-term.”

The one group mostly unaffected by this increase is the domestic manufacturing contingent, as well as those with facilities in countries such as Vietnam, Indonesia and Brazil.

“With all Castelle products made in the Americas, Castelle will not be subject to the 25% tariff that began on May 10. As such, retailers will not lose profits or sales that could result from price increases necessary to offset the tariffs,” said Mark Stephens, president of Castelle, in an email statement sent following the increase. Castelle manufactures in Costa Rica.

While concerned by the overall effect this tariff situation will have on the industry, many domestic manufacturers also see an opportunity to appeal to new and existing customers looking for tariff-free resources.

cargo containers tariffs

“The tariff holds little direct effect to Telescope, as all product is made in America from American-sourced raw materials,” says Matt Pisani, national sales manager, Telescope Casual. “However, the demand for American-made product and raw materials will continue to increase. Retailers will be facing volatility and general uncertainties, and as a domestic manufacturer, we look forward to being a source of stability for our dealers. ”

If the tariff remains in place, Murray sees a lot of manufacturing shifting to other countries, such as nearby Vietnam. But there are drawbacks with that approach, as well.

“The long-term effect if this is going to stay 25% or worse is supply chains will change, and we’ve already done some of that,” he says. “But we can’t move 100% to Vietnam because it’s not big enough.”

Murray says he understands the sentiment of wanting to return jobs and manufacturing operations to the U.S., but he explains that’s not as simple as enacting a tariff to force everyone to change.

“I think a lot of our industry is collateral damage in this battle,” he says. “We’re not taking U.S. jobs away in the woven category. And I think the collateral damage part is very personal for us.”

As negotiations continue, many remain hopeful a deal can be made to either remove the tariff or drop it to a more palatable 10%. The rub for the casual industry comes as we move into the market season for 2020 with the ICFA Preview in July.

“We can only hope that eventually the trade differences will be worked out and we’ll not see the tariffs by the time new
orders are placed and shipped for 2020,” says Gaylord.

As the uncertainty about the pending increase at the end of last year impacted ordering for the 2019 season, that same hesitance will persist if the tariff stays in effect throughout the summer months. And some see that as catastrophic for the casual industry.

“If the 25% sticks for any significant amount of time, it will put people out of business,” says Murray. “Users will pay more and many will chalk this year up to just surviving. It could all change as negotiations continue, but we need some clarity going into July—not knowing would be a disaster.”

Source: http://www.casualliving.com/rss/53-garden-decor/

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