Published
Edited
May 20, 2021
md`On Sept. 24, 2018, in the Man Kam To Port Building near the border between Hong Kong and mainland China, Allen Liao, a sales manager for an international shipping company, went to his office as usual. Getting the news about the finalization of the third-round tariffs between the U.S. and China, Liao was more pleased than worried.
Early on Sept. 6, he had sent three screenshots of news about the possible tariffs on the $200 billion worth of Chinese goods on his social media and upvoted his own post. The new tariffs finally came.
“For the Chinese side, the problem is the subsidy is decreasing and many products can’t be exported. But for our business, the chances are coming,” said Liao. The business of Liao’s company is entrepot trade, which means they export Chinese goods to third countries, like Malaysia or Bangladesh, repackage them and export them to the U.S.
Furniture and kitchen cabinets valued at more than $18 billion are the sixth largest category of goods the U.S. imported from China in 2017, according to the U.S. International Trade Commission. Worrying about the current 10 percent tariffs and the eventual rate of 25 percent on Jan. 1, 2019, Chinese companies are looking for ways to cope with the trade war.
For major furniture companies in China, moving their factories to Southeast Asian countries like Vietnam is a viable choice. Samson, whose headquarters is located in Jiashan, China, is one of the biggest furniture manufacturers and wholesalers in the world. “One of our companies is sourcing all of its products in Vietnam, so they’ll be in a complete transition,” said Kevin O’Connor, former CEO of Samson Marketing and a consultant for the company after having stepped down.
Lacquer Craft Hospitality, an American company whose support system is in China, considered moving their factories, too. “We’re moving some of our productions to Bangladesh and also Vietnam,” said Mohamad Amini, president of Lacquer Craft. “We are basically preparing for the worst and hoping for the best.”
The U.S. started to levy anti-dumping duties on Chinese wooden bedroom furniture in 2004, according to documents of the U.S. International Trade Administration. At that point, some companies started moving their manufacturing plants. “[Factories moving out of China] was already happening because of rising wages within China, and the trade war may accelerate this process,” said David Dollar, an expert at the John L. Thornton China Center.
Some other China-based furniture companies have invested in companies in Vietnam. According to an article in Furniture Today, Chinese furniture manufacturer Markor “will become a major shareholder in Starwood,” which is a furniture company in Vietnam. Lacquer Craft also planned to invest in furniture companies in Vietnam. “The higher-ups are taking steps to invest in Vietnamese factories,” said Noel Chitwood, president of Lacquer Craft.
But there are some uncertainties before a company decides to enter the Vietnam market. “Moving factories to Vietnam will not solve all the challenges. Labor force, regulations might be new problems,” said Jiemei Shen, secretary general of Fujian Furniture Association. She added that more investigative research needed to be made before moving the factories.
Not all Chinese furniture companies are able to build new factories or invest in other companies. Small manufacturers have turned to shipping companies like Liao’s for help. “Other companies gave us the advice [about entrepot trade], but we haven’t tried that yet,” said Tracy Tang, a sale manager of Jiangyin Vfinder Furniture, a new company registered this past July.
The original exporting cost for a large container from China to the west coast of the U.S. is about $3000. “Through entrepot, the tariff is basically zero. You just pay $3000 extra for the shipping as an expense,” said Liao.
The Chinese government has formulated policies to help exporters. “These factories are able to cope because the RMB has also devalued by about eight to 10 percent,” said Cheok Sin Lim, former president of the Council of Asia Furniture Associations. “The Chinese government also increased the rebate rate by 1 percent to help these exporters,” said Lim. With the increase of export tax rebate rates for wooden products since Nov. 1, 2018, Chinese furniture enterprises have gotten more refunds of taxes they paid in the process of production and distribution.
The influence of a 10 percent tariff on Chinese furniture exports is not clear and buyers and sellers will absorb the loss together, said Shen. Chinese dollar-denominated exports have risen 15.6 percent from a year ago in October, according to the data from Chinese customs.
“Companies aren’t going to be coming back to the U.S., they’ll just be moving to other countries,” said Dollar. Dr. Lim held the same opinion and added, “Imposing tariffs only affects prices and quality for the U.S. consumers.”
The number of Liao’s orders haven’t increased recently, and his clients are hesitating. Although his company can get real Certificates of Origin from Malaysia, his clients need to take the risk of paying fines and repaying the anti-dumping duties or tariffs, if the U.S. customs can prove their goods are re-exported from China.
Liao is making some preparations for the coming 25 percent tariff. He said he would send more advertisements on the Internet, because “2019 will be a turning point, a breaking point.”`
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