Thinking through the proposed tariffs

Vietnam, India, Mexico among the chief beneficiaries

President Trump has proposed applying a 60% levy on all Chinese goods imported to the U.S., a tariff threshold not seen in a generation and a potential Molotov cocktail in global trade. While some view 60% as an unlikely and extreme scenario, it’s worth a look. Or perhaps a listen, because this feels a bit like eavesdropping on a street riot. 

On RH’s last earnings call, RH CEO Gary Friedman said he sees the 60% tariff announcement as an attempt by Trump to establish leverage. 

“Look, Donald Trump wrote The Art of the Deal, right? And if you’ve ever read The Art of the Deal, you . . . see the negotiating starting to play out,” Friedman told analysts on the call. “It is a global negotiation.” 

In Friedman’s estimation, Trump is “a great negotiator,” he said. “I think he’s looking at the world’s playing field and saying, ‘How do you use leverage?’ . . . He’s really good at using leverage. He’s done it before. We’re seeing him do it now. He hasn’t even taken office and the art of the deal is in full play right now.”

Interdependence

China exported about $500 billion of goods to the U.S. in 2023, according to the United Nations, or roughly the net worth of Elon Musk. (Last year’s export numbers aren’t known yet.) Of that half-trillion, fully 20% was furniture, toys, clothing and shoes. So, these numbers underline what we already knew, which is the centrality of China to the global home furnishings industry. 

This interdependence begs a few questions, including how much of tariff-induced price increases Chinese producers feel they will be able to pass along to customers and, on the import side, the same. On a more macro level, how will Chinese manufacturers restructure their customer base to compensate for U.S. importers looking elsewhere for product, including and especially Vietnam, Mexico and, to a lesser extent, India and Brazil. After all, it takes but one stone to start an avalanche.

“The effect of 60% tariffs . . . would be quite severe,” said Louis Kuijs, S&P Global Ratings chief economist for the Asia-Pacific region, referring to all Chinese exports to the U.S., not merely furniture. 

S&P Global estimates that in the wake of such a tariff China would see 2.3 percentage points less economic growth in 2025 and 2.8 points less in 2026, pulling 2026 expansion significantly below 2%.

“The shock would drag down the level of GDP around 5% below our baseline forecast by 2026,” Kuijs said. “Imports would also fall, but much less than exports.” 

An aspect of these more modest estimates is the squeeze likely applied to margins, because passing along all of the tariff-induced price increases would likely be too much of a jolt. The National Retail Federation has estimated that the proposed tariffs on apparel, toys, furniture, appliances, footwear and travel goods would cost consumers another $46 billion to $78 billion a year. Thus, just as we saw during the pandemic, each link in the supply chain will be tested for its willingness and ability to offset the price increases. 

Not surprisingly, some U.S. importers stocked up in the last several weeks of 2024 in anticipation of the Trump-promised tariffs, and, equally unsurprising, many are continuing to shift production out of China. But major changes to supply chains cost, too, including the overhead to manage it, which begs another question: What’s the inflection point for any U.S. importer reliant on China to determine that it is actually a better scenario to evacuate and look to, say, Vietnam? 

For RH, the decision was made long ago, in Friedman’s telling, and the possibility of a new, steep tariff simply confirms the strategy.

“We have been proactively moving sourcing away from China over the past several years with the expectation of fully exiting the country by the end of the second quarter,” Friedman told analysts. “We are also transitioning products manufactured in Mexico and believe we can successfully reposition our sourcing with no disruption to the supply chain.”

India’s lag in automation

One of the obvious alternatives to China is, of course, India, and this has been true for nearly 30 years. India’s challenge with respect to furniture exports has always been infrastructure and a huge disadvantage in efficiency when compared to its northern neighbor. Even now, in 2025, India could be described as only beginning to significantly automate its furniture production. 

“China created furniture hubs, heavily investing to harness economies of scale,” even though it enjoyed big advantages in labor affordability, said Andre Eckholt, managing director of Hettich Group, to Fortune India. 

India, by contrast, is dominated by small, labor-intensive concerns that can’t compare with Chinese producers in terms of scale or efficiencies. Eckholt estimated that nearly 70% of India’s market remains unstructured, meaning mostly small shops making bespoke items. This is the reason that what Ikea sources in India stays in India to be sold by Ikea in the country.  

But India has one of the world’s fastest-growing economies, and U.S. tariffs on Chinese-made furniture presents India’s furniture makers with a golden opportunity. The World Bank estimates that India’s manufacturing sector could double its share in global manufacturing output by 2030, but only if its manufacturers invest in ways China’s producers did. 

“Made in India” will only become attractive when its furniture makers standardize and automate, Eckholt said.

The Hettich case study

Hettich produces, among other furniture components, drawer systems and sliding and folding door systems. Based in Germany and employing nearly 9,000, the $1.5 billion company is looking for sourcing alternatives to China just like a lot of U.S. concerns.  

Eckolt said Hettich’s strategy is to make India a secondary manufacturing hub. The Indian market is already Hettich’s second largest and fastest growing, contributing 15% to its global revenue. 

“We are developing India as a second manufacturing hub from a global scale to de-risk the supply chain globally,” he told Fortune India.

This means India will need to be serious about job training. According to a report from Goldman Sachs, India will need 10 million new jobs each year for the next decade to sustain an average annual economic growth rate of 6.5%. The report recommends “redirecting fiscal incentives towards labor-intensive manufacturing industries, such as textiles, food processing, and furniture” (emphasis added).  

Turning to Europe

A bit overshadowed in the attention paid to Asia is Europe, which stands to gain when Chinese producers look for markets to replace the U.S. On the flip, however, European exporters to the U.S. are worried they, too, could end up getting the wrong kind of trade attention, because the EU enjoys a large trade surplus with the U.S.

“If European governments try to attract more Chinese foreign direct investment as an alternative to importing as much as they currently do from China, the Trump administration might impose even more restrictions on European exports to the U.S.,” said Robin Niblett, a fellow with the London-based think tank Chatham House. He was interviewed by the South Morning Post newspaper in China.

Niblett warned that beyond trade, there is an intensifying competition for global influence that is pitting China and Russia against the U.S. and its security allies in Europe and Asia. If the U.S. pulls out of the Paris Agreement (President Trump already has ordered an exit from the Paris Agreement) and the World Trade Organization, as many expect him to try to do, Europe could suffer from the power vacuum created by these exits. A WTO pullout would, in Niblett’s description, undermine “the rules of international trade on which Europeans rely so highly as leading exporters.”

In addition, Trump could de-emphasize or even end close coordination among the U.S. and other Group of Seven member nations on sanctions, trade, investment policy and technology governance. 

“All those allies which depend on America for their security are now more dependent on America than they were five years ago,” Niblett told the Chinese newspaper. “They have come together under the umbrella of the Group of Seven, which Biden helped turn into a coordinating body for the economic and technological contest with China, whether these are import and export controls, investment controls or new supply chains among friend-shored, value-shored communities.”

Thus, whether the 60% tariff threat is merely the flick of an adder’s tongue or a legitimate trade goal, its effects have already begun to cascade into markets and supply chains. 

Brian Carroll

Brian Carroll covered the international home furnishings industry for 15 years as a reporter, editor and photographer. He chairs the Department of Communication at Berry College in Northwest Georgia, where he has been a professor since 2003.

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