The Phase One trade deal with China announced Dec. 13 marked a step in the right direction.
That’s one assessment from members of the Home Furnishings Association’s Government Relations Action Team. Others were less positive, and most are waiting to see further developments.
The HFA as a whole has not taken a position on the initial trade deal.
One disappointment is that the agreement revealed by the Office of the U.S. Trade Representative did not change the 25 percent tariffs on most home furnishings products imported from China.
“It really did not address our industry and will continue to make Hoosiers pay more for a segment of our mix,” said Jim Kittle, chairman of Kittle’s Furniture in Indianapolis. “This will continue to create dislocation and slowdown in our industry.”
However, Kittle noted that “the trade deal will help some sectors of our economy, especially agriculture, which really helps Indiana farmers and therefore our state economy.” He added that tariffs weren’t increased on imported furniture, an action that was threatened in October.
Deal shines light at the end of the tunnel
“I believe this is a positive move in the right direction and provides some light at the end of the tunnel for us and our industry,” said Mitchell Stiles, vice president for dealer retail operations at W S Badcock Corp. in Mulberry, Fla. “It’s easy to overlook the silver lining here, and that is both sides are agreeing and working toward a resolution. This is what progress looks like, and it doesn’t usually all come at once.”
Chris Pfeifer, the owner of Homestead House in Conroe, Texas, expressed frustration.
“I am disappointed that the monies we pay in tariffs are miscommunicated to the public and to the farmers as coming from China,” he said. “Like there is no one else involved, no one else being affected but the farmers and China.”
Tariffs have been presented as a duty paid by Chinese manufacturers and exporters. While they may absorb some of the costs, a tariff is a tax paid by importers and often passed to retailers and, ultimately, consumers.
“To date, Americans have paid over $42 billion in taxes due to the imposition of tariffs,” Americans for Free Trade wrote in a letter to President Donald Trump Dec. 11. Americans for Free Trade is a coalition consisting of dozens of business groups, including the HFA.
Francis O’Brien, owner of The Furniture Market in Modesto, Calif., cited that number and send some of it has been passed to his customers.
Subsidies for farmers but not retailers
Pfeifer referred to billions of dollars in subsidies the government has paid to farmers to compensate for their trade losses. He added that negotiations with China have also focused on protecting American tech firms that do business in China and are required to give up trade secrets.
“It would have been easier to simply make a law that American companies cannot divulge corporate secrets to any foreign entity, corporate or government,” Pfeifer said. “But, no, we are going to use low-tech companies and their consumer products (to) pay and pay and pay. Then we are going to give that money to the farmers and say it came from China. We have been used as a pawn, and we will never see the benefit of being used as a pawn.”
“The decision to cancel the List 4B tariffs and the announcement that the Phase One deal will cut some tariffs already in place is a small step forward,” Americans for Free Trade said in a Dec. 13 statement. “However, the tariffs still in place are a tax that Americans – and not China – continue to pay, to the tune of tens of billions of dollars. And by only reducing the tariffs on a few items, the administration is picking winners and losers in this trade war. In the month of October alone, Americans paid almost $2.7 billion in additional taxes because of the tariffs on Lists One through Three. That’s why we urge the administration to continue to work diligently to come to a final agreement with China that will remove all of the tariffs currently in place.”
But Stiles sees a larger strategy playing out.
A painful but necessary struggle with China
“President Trump was extremely transparent during his campaign, and as painful as this has been for our industry, it was and is necessary,” Stiles said. “As a retailer that flows our own containers, the true disruption has been to our supply chain as goods that have moved to Vietnam now require an extra 30-day lead time. This means we have to buy deeper and maintain an extra 30 days of safety stock, which puts a strain on cash. All in all, we are excited with the progression from both sides and look forward to more developments.”
Kittle is also optimistic, especially on another trade agreement, the U.S.-Mexico-Canada deal, which will replace the North American Free Trade Agreement. There is more consensus among HFA’s GRAT members that USMCA offers benefits for U.S. manufacturing and the economy in general.
“I’m hopeful the Trump team will follow up with a quick NAFTA deal so North America can continue as a great trading bloc and also move forward on a Phase Two to include the furniture and fabric parts of our business,” Kittle said. “I do believe this is a good first step in our dealing with China.”