When the tariffs on China were first imposed in the fall of 2018, at 10%, there was a lot of speculation as to the ultimate size of the tariff and who else would be targeted, now that China had been confronted. As of year-end 2017, China was importing $5.161 billion in wood furniture, and in second place was Vietnam at $3.05 billion. Canada was a distant third at $812 million.
When asked specifically about Vietnam, President Trump said Vietnam was one of the worst offenders and was being investigated.
On Oct. 5, 2020, at the direction of President Trump, the Office of the U.S. Trade Representative announced it was initiating a Section 301 trade investigation into Vietnam, focusing on an alleged use of illegal timber, practices that may lead to an undervaluation of its currency and additional issues that have hurt U.S. commerce, farmers and other products.
Reading the complaint in more detail, it struck me that we are investigating Vietnam breaking its own laws, international treaties and other nation’s laws (like Cambodia) rather than U.S. regulations.
There is no doubt that the tariffs and other actions have hit Chinese wood furniture exports to the U.S. These peaked in 2018 at $5.666 billion in 2018 and dropped sharply to $3.694 in 2019, the latest year available.
Vietnam was able to take advantage of this, and its wood furniture shipped to the U.S. grew to $4.009 billion in 2019 vs. $3.271 billion in 2018, making Vietnam the largest source of wood furniture imports into the United States. Vietnamese wood furniture shipments grew 12% per year over the past decade to its highest level in 2019, having started at $1.45 billion in 2010.
Many of us remember Paul Maitland-Smith opening his new factory in Vietnam in the late 1990s, well before Vietnam had achieved favored-nation status with the U.S. In doing so, Mr. Maitland-Smith praised the workforce in Vietnam for its skill as craftsmen and its reasonable manufacturing costs. As a result, retailers who wanted his new product from Theodore Alexander had to pay the various duties, which we learned later were paid by the company to get placements and sales in the U.S.
Not many years ago, U.S. premium furniture maker Stickley established a factory in Vietnam for its several brands. Others followed. Industry giant Ashley has a major factory presence in Vietnam, too.
With the new tariffs to ship Chinese-made furniture into the U.S., many Chinese factories have opened facilities within Vietnam or acquired large existing operations, like Manwah did in 2019. Many buyers tell us the cost difference between China and Vietnam is not what you might expect. Because of China’s strong logistics, port system, educated and productive labor force and government support, for much of this year we hear that many products could be sourced in China at prices equivalent or nearly so to Vietnamese prices.
This adds another level of confusion and complexity to sourcing in 2021 and beyond, enhances the likelihood of more inflation, and makes us all ask, “what nation is next?”
Will this bring production back to U.S. factories? In our analysis, 14% of the wood furniture sold in the U.S. at retail is made in America vs. 30% of it 10 years ago.
Will it raise prices to U.S. retailers and consumers? There is no question.