In 2018, the U.S. administration levied taxes on a broad range of products from foreign nations, most notably including China, the EU, Mexico and Canada. Whatever your political persuasion, let’s examine the ways that tariffs ultimately affect office furniture buying: the economic effects, the industry response and what it all means for you.
Economic Effects on Office Furniture Buying
Import tariffs are intended to help domestic producers of regulated items by artificially inflating the price of foreign imports. If the industries that consume the regulated items as inputs are unable to absorb increased cost, that cost may be passed onto consumers. If those industries can neither absorb or pass the cost on, they may have to explore less expensive options for production.
In the case of steel and aluminum, U.S. consumers employ ten times the number of workers as producers. So, U.S.-produced steel will likely see price increases due to short-term production capacity restraints. Industries that consume that steel will feel those effects in the form of increased COGS and shortages.
This will have a variable effect on job growth by region as metal producers and consumers typically cluster together geographically. Metal producers are clustered in Indiana and Alabama, while the top five states for U.S. office furniture manufacturing are California, North Carolina, Texas, Michigan and Indiana. Finally, steel and aluminum are materials used in nearly every business purchase, so organizations could see an increase in price for a wide range of consumer goods. This has the potential to depress consumer activity, and discounts the likelihood of retaliatory measures and proposed tariffs on other goods such as wood veneer, metal racking and adjustable chairs.
Office Furniture Industry Response to Tariffs
The office furniture industry depends largely on corporate expansion, not office furniture buying. While tariffs may discourage new construction, the office furniture industry won’t lose out on much opportunity as that expansion more regularly takes place in existing structures. However, if the trickle-down effect of tariffs on business expenses discourages the overall rate of corporate expansion, the tariffs will have indirectly decreased market demand in the office furniture industry. This is the projection made by BIFMA, the trade association representing business and institutional furniture manufacturers across North America.
“BIFMA projects that its member companies will experience a significant increase in steel and aluminum costs in 2019 as the result of the recently proposed tariffs and related inflation. BIFMA further projects the increased material cost will have a negative impact on market demand, likely leading to a net job loss in this sector.”
Outside the industry, a 2017 study by the United States International Trade Commission modeled the impact of hypothetical changes in the tariff on U.S. office furniture buying imports from China on industry employment in different regions of the United States. The study found that imposing an additional 20 percent tariff would increase industry employment by about 4.4 percent.
The public filed 3,200 comments for items to be included or excluded from the legislation. The original list of 1,300 proposed items was whittled down to 818, with an additional 284 recommended for review. Representatives from the office furniture industry played a large part on both sides.
HNI is a conglomerate of globally-leading brands in office furniture and home fixtures. “The industries producing adjustable office chairs and metal filing cabinets in China are large and have substantial production capacity,” a representative from HNI wrote in the comments section.
“The Chinese office furniture industry is understood to benefit from government-sponsored industrial policies, including major production subsidies. The imposition of tariffs against imports of adjustable office chairs and metal filing cabinets from China would have a beneficial impact on U.S. producers of these products, because there is significant production of these products within the United States and imports of these products are available from numerous other source countries.”
“While we do not import any raw steel into North America, we have not been surprised to see the recent increases in domestic steel prices in response to potential tariffs on imported steel,” said Herman Miller’s CEO. While the company has no concrete plans at this time, the company’s CFO said it could shift some manufacturing to other countries or find third-party companies in those regions to make products for them. Herman Miller has foreign production capacity that includes China and the U.K.
What It Means For Your Office Furniture Buying
First, there will likely be a greater annual price increase than normal to account for inflated input costs. Also, the U.S. market can probably expect a short-term shortage resulting from contract furniture production constraints as tariffs take effect and companies look to alternative sources. This will result in additional price increases, lead times or both.
On the bright side, it will become easier and (relatively) more cost-effective to source U.S.-made products when office furniture buying. For businesses looking to circumvent those trickle-down costs, there are a number of avenues to explore.
“When the elephants dance, everybody gets shaken up,” said Lyneir Richardson, executive director of the Center for Urban Entrepreneurship and Economic Development at Rutgers Business School. “In this instance, [small businesses are often] dealing with the supply chain asking for higher costs that cannot be quickly passed onto customers. It means more time thinking about pricing, renegotiating and managing cash flow.”
- First up is the history of your furniture manufacturer and their response to the measures – if the company has an established domestic source for their materials, they’ll likely not pass on much cost increase to their consumers.
- Next, utilize what exists. Used furniture and existing buildings won’t feel the effects of tariffs on new imports.
- Finally, eliminate what you can by transitioning to a digital workplace. Investing in mobility and autonomy rarely have steel or aluminum components.
Thanks for Reading!
We hope this helps you make more informed decisions about purchasing as our industry responds to imposed and proposed tariffs. Like we’ve said before, we’re in the business of making your workspace work as hard as you do. Change in your workplace on the horizon, or just on the brain?