Photo above: Leaders from Mexico, the United States and Canada sign a free-trade agreement among their countries in November 2018.
New tariffs on furniture imports from Mexico will impact retailers who are already feeling the effects of the trade war with China, analysts say.
President Donald Trump said Thursday he’ll put a 5 percent tariff on all imports from Mexico beginning June 10 and increase them monthly until they reach 25 percent on Oct. 1 unless Mexico stems the flow of migrants across its border with the United States.
“Five percent is not a big deal,” Smith said Friday. “But going up to 10 percent, 15 percent to 25 percent on a monthly basis, that gets steep.”
“The escalating part of this Mexican tariff is frightening,” Jerry Epperson, a furniture analyst with Mann, Armistead & Epperson in Richmond, Va., said in an email to the Home Furnishings Association Friday.
The U.S. Census Bureau’s foreign trade report for 2017, the most recent, fixed the value of furniture imports from Mexico at nearly $1.4 billion, ranking that country as the fourth-leading exporter of home furnishings products to the U.S. China was far and away the largest, exporting more than $18 billion worth of furniture to this country. Its products already are subject to 25 percent tariffs.
The money goes to the Treasury
Smith doesn’t dispute that tariffs may be needed to punish China for unfair trade practices but said “the bad news is the tariffs are going to the Treasury instead of the people who are selling furniture.”
Furniture retailers “should have raised prices long ago” on imported products, said Smith, who maintains that home furnishings products are typically underpriced. “It’s been sale, sale, sale as opposed to sell, sell, sell,” he said.
With tariffs hitting more imports, the pressure on prices will increase as neither suppliers nor retailers can continue to absorb the higher costs, Smith contended.
“You’ve got to take care of your suppliers at some point,” Smith said of retailers. “Suppliers don’t have much margin.”
Epperson sees another part of the problem.
“The Chinese and Mexican tariffs will hurt our retailers, and in many ways our consumers,” he said. But consumers may not understand that tariffs don’t apply to all furniture.
Tariffs don’t apply to most furniture
“These tariffs are adding yet another level of confusion to our sales,” he said. “Consumers are being told the tariffs are temporary until the issues are resolved, so they should wait to buy a deferrable purchase like furniture. Meanwhile, over 60 percent of the furniture sold in our stores is not impacted by tariffs! Mexico and China together represented 39.4 percent of all residential furniture and mattresses sold in the U.S.”
Epperson advises retailers to tell consumers about products that are not touched by tariffs. “We, as an industry, must communicate to our consumers that these tariffs impact only a portion of our furniture, not all like some media have implied. We cannot wait to do this.”
The Home Furnishings Association belongs to a large business coalition called Americans for Free Trade. HFA supports efforts to reform China’s business practices but believes that tariffs are the wrong tool, penalizing U.S. businesses and consumers.
It’s uncertain what impact the new tariffs will have on the renegotiated free trade agreement among the U.S., Canada and Mexico, which Congress must ratify.