Waging a War on Imports May Not Be the Best Strategy
Thursday, June 2nd, 2005
By George Leong, B.Comm. for Profit Confidential
When the last time you purchased furniture? I recently went shopping for a bedroom set, and, to my amazement, I discovered that a lot of the furniture I was looking at was made in China. Was I really surprised? No, not really. I have read that furniture imports skyrocketed year-over-year by 15% to $18.4 billion in 2004. And a good percentage of that was from countries with low labor costs, including China.
Now, some of you may be quite aware of this issue, and you probably don’t like it one bit. You might have written to your congressman and complained. And clearly the government is listening, as duties have been rising.
But, here’s the deal. Before you get too upset that cheaper imports, especially from China, are on the rise, keep in mind that trading is a two-way street. And, unless the Yuan is allowed to float freely against the greenback, I do not expect this trend of increased Chinese goods to shift in the foreseeable future.
The furniture industry in America is a perfect example of how cheaper Chinese-made products are flooding the United States. The impact of Chinese furniture has resulted in disappearing jobs and plant closures. To fight this, the Commerce department has placed anti-dumping duties that range from 0.8% to 198% on imported Chinese wooden bedroom furniture.
Domestic furniture manufacturers may be happy to see something being done, but American retailers are clearly not happy with the decision to slap high duties on cheap, but high quality Chinese furniture. And guess what? They have a valid argument. By paying heavy duties, the cost of Chinese furniture goes up and American consumers are forced to buy higher cost furniture.
It is a difficult issue to resolve. The duties hurt the consumer, but benefit the local furniture manufacturers. But, as some long- term quotas in China are phased out, I expect a marked increase in Chinese-made furniture. I do not believe the issue is black and white. There really is no hard evidence that China is pursuing a “dumping” strategy. If the U.S. plays hardball with China, it could backfire. Consider this–much of the raw wood materials China buys is purchased from U.S. companies. So, you have Chinese furniture made with American wood. That’s interesting.
The reality is that China has a competitive advantage in many areas, including furniture. I do not feel as though duties are always the solution. They should be used to protect infant or emerging industries. This is the basis of trade economics. Instead of complaining, U.S. furniture makers should look at alternative ways of becoming more competitive.
And remember, there are numerous U.S. companies trying to break into the massive Chinese market, so you definitely don’t want to engage in a trade war with the Chinese. China has had to deal with attacks throughout its history, and it’s still standing strong today. We need to take note of this.
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Tags: chinese economy, stock market
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
