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The threat of 25% tariffs on imports from Mexico and Canada had furniture manufacturers in both countries scrambling last week, at least for a few hours. The tariffs, imposed on Saturday, Feb. 1, were rendered moot (at least for another 30 days) hours before they were scheduled to go into effect on Tuesday, Feb. 4.
That did not stop manufacturers from needing to consider adjustments to their production forecasts, pricing strategies and global sourcing relationships, in some instances for the second time in less than five years. The imposition of similar 25% tariffs on imports from China in 2019 forced a major realignment in global sourcing activity, with many manufacturers in China shifting to Vietnam, Malaysia, Indonesia and Mexico, just to name a few alternatives that have emerged.
That round of tariffs resulted in China being displaced as the No. 1 exporter of furniture to the U.S. in favor of Vietnam, which currently holds that distinction. Much of that realignment was centered on the upholstery segment and to a lesser extent on the case goods business.
That realignment — which disrupted supply lines and sparked delays in deliveries as new source countries struggled to match China’s ability to move massive amounts of inventory — was a factor in the freight rate debacle that was triggered by the surge in demand at the outset of the COVID-19 pandemic.
And while the threatened tariffs on Mexico and Canada have been delayed, the prospect of their return will keep manufacturers on edge and searching for alternatives over the next 30 days.
In the case of Canada, the tariff tussle could prove further exacerbate the U.S. housing shortage that has made it difficult, even in the face of declining interest rates, for younger consumers to get into their first homes. That, like higher prices on furniture imports, is not something the industry needs right now.
The other outcome of the most recent tariff dispute is that it increasingly appears that tariffs are being used as negotiating tactic more than as an instrument of trade policy, their traditional purpose. In the cases of both Mexico and Canada, the pause in tariffs resulted not from a change in trade terms between the respective countries but from agreements designed to stifle the flow of immigrants and fentanyl into the U.S.
While that does not have a direct impact on the furniture business, should tariffs continue to be a regular tool of international negotiation, the number of countries that could see them imposed is likely to grow, making it even more challenging for furniture manufacturers looking for consistency, reliability and predictability in their sourcing relationships.
The furniture industry has seen some of its best performance the past three months, and conversations with retailers and manufacturers during the most recent market season suggest there is genuine optimism for the industry’s performance in the coming year.
It would be unfortunate if a series of tariff disputes derailed that momentum.
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