The 25-percent tariff rate imposed by President Trump on $200 billion worth of Chinese imports will likely prove a mixed bag for BrandSource members.
According to BrandSource director of merchandising Chad Evans, the impact of the higher duties, which were hiked from 10 percent, will vary by product sector. On the appliance side, vendors tended to anticipate the increase and took advanced actions, like pre-emptively raising prices or moving production out of China. Nevertheless, “The higher rates could possibly warrant some future price increases,” he said.
In contrast, furniture suppliers are less well prepared, Evans noted, as many didn’t expect the higher duties to go forward and continued to source their wares from China. Assuming the 25 percent rate holds, “Some of these companies will be hurting,” he said, and will be forced to either absorb the increased costs or raise their prices and quality.
The news is brightest for domestic mattress manufacturers. Their chief competitors, the bed-in-a-box brands and imported mattress products, largely source their goods from China, and an increase in costs is certain to hurt their business. “Shoppers may think twice about buying online,” Evans said, as the price delta with traditional mattresses narrows.
Still, should appliance vendors push through another round of price hikes, the chill could be felt on the sales floor. “If a consumer comes in expecting to spend $2,000 on a refrigerator and finds themselves priced out of the French-door market, now they’re buying a side-by-side,” Evans said.
The higher duties, announced by Trump last week, impact a wide range of items including furniture and appliance parts and components. The 25-percent rate was initially slated to go into effect Jan. 1 and was postponed repeatedly as trade talks with China continued. But with no deal in hand by last week’s extended deadline, the new tariff is being imposed on goods exported after May 10.
The president indicated in a series of tweets that while negotiations are continuing in a “very congenial manner,” he is also preparing to place an additional 25-percent duty on the remaining $325 billion in Chinese imports that aren’t already subject to tariffs. China has since responded in kind by promising to raise tariffs on $60 billion worth of U.S. exports to as much as 25 percent beginning June 1.
“The U.S. only sells China approximately $100 billion of goods and products, a very big imbalance,” Trump tweeted last week. “Tariffs will bring in far more wealth to our country than even a phenomenal deal of the traditional kind.”
Industry trade groups disagreed. According to a statement from the National Retail Federation (NRF), representing U.S. merchants, “This is bad news for nearly every sector of the American economy… When faced with tariffs, companies are forced to cut costs elsewhere in their business to stay afloat. Ultimately, tariffs can mean lower wages, fewer employees, deferred investments and higher prices for consumers.”
The NRF quoted AudioControl CEO Alex Camara, who imports about 25 percent of the parts for his high-end home-audio equipment from China. Camara said it was painful enough absorbing costs from the 10 percent tariffs, but with the new 25 percent rate he’ll be forced to cut back on R&D and “raise overall prices to dealers and retailers by 8 percent to 12 percent – costs that would be passed to consumers and that could crimp sales.”
AudioControl is not alone in its concerns within the consumer electronics industry. Gary Shapiro, president/CEO of the Consumer Technology Association (CTA), representing CE manufacturers, said the group agrees with the need for an enforceable trade agreement with China that protects intellectual property, but that raising tariffs “will be disastrous.”
“Tariffs are taxes, plain and simple,” Shapiro said. “And they’re paid for by U.S. consumers, workers and businesses – not by China.”
Shapiro added that the tariffs already in place have cost the U.S. tech sector about $1 billion more a month since October and are hindering America’s development of new 5G technologies.