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When U.S. President Donald Trump decided to slap tariffs on furniture from China, suppliers like Mike Wu, who runs a furniture factory in Foshan City in south China's Guangdong Province, was nonetheless more worried for his American partner.
His factory specialized in producing ready-to-assemble theater seating and airport seating for markets worldwide, with a 10 percent of the market share in the United States. When a 10 percent tariff increase was levied on the seats in May last year, his partner, an American furniture contractor firm, was in a deep panic since Mike was their only supplier.
"We could instead try to sell more to the domestic market, but our American partner had no choice other than paying a higher price," said Mike in an interview with CGTN. He requested not to have his company and his American partner's company named for the fear of any negative market reaction.
Though President Trump repeatedly suggested that higher tariffs on goods from China will have no impact on American firms since they can trade with non-tariffed countries, reality shows that the pain is equal, if not more on American companies.
Since seat manufacturing is a labor-intensive industry, across the world, there are few remaining large-scale factories. "Our competitors are not domestic American factories, but factories from Eastern Europe, Mexico and Turkey," said Mike.
A furniture factory in Guangdong province. /VCG Photo
This means that when the American furniture contractor tries to look for alternative sourcing, there are not many available options.
"All those seating factories from eastern Europe and South America already have their own contractors in the United States, and thus our American partner cannot easily find a replacement, if they decide to terminate the partnership with us," Mike added.
In the end, the two reached an agreement to share the pain. Mike's company would lower the price of its product for three percent, the American furniture contractor would reduce its profit margin by three percent, and for the rest, the four percent in loss brought by the increased tariff would be passed down to consumers.
If the increase in price is not noticeable after the Trump administration slapped a 10 percent tariff on Chinese imports, it is going to become noticeable once the impact of the 25 percent tariff increase kicks in, said Edward Logan, senior analyst at the GailFosler Group, a strategic advisory service for global business leaders and public policymakers based in New York, in a phone interview with CGTN.
Earlier this month, the Trump administration increased tariffs on 200 billion U.S. dollars' worth of Chinese imports to 25 percent, from the previous 10 percent.
Since it usually takes around three weeks to ship goods from China to the United States, American consumers are going to start noticing the price jump in June, at the earliest, Logan said.
In the previous two rounds, it has been primarily agricultural and industrial goods that are hit by the tariff; thus some companies have been trying to shield consumers from the impact of the trade war.
But over time, as intermediate industrial goods are subject to higher tariff and the number of final goods slapped by tariff increased, it becomes impossible to expect companies to absorb the rise in cost without passing it forward to consumers.
The Peterson Institute for International Economics finds that while consumer goods account for only one percent in the first round of tariff increase levied by the Trump administration, in the second round, its percentage rose to 24 percent. In the latest round of tariff hike, about a quarter of the imports hit by the 25 percent tariff are consumer goods.
It is also not as easy for American companies to mitigate the impact of the trade war by looking for alternative sourcing, said Ju Jianshuang, founder of Nantong Jiehao furniture company specialized in bathroom sets and kitchen sets manufacturing.
After the 10 percent tariff hike, his American furniture contractor visited factories in Southeast Asia in hope of shifting the production chain away from China. But they later found out that factories there still had to import most components required in the assembly from China, for instance, painting, hardware, etc.