Dumping on the Chinese furniture industry

Currently, the U.S. antidumping police in the Commerce Department are peering into Americans’ bedrooms, looking to see if we are paying enough for our beds and dresser drawers. And why not? They’ve already grown accustomed to crawling all over our homes. They know our kitchens very well, having taxed our refrigerators that have steel in them, and much of the food that is inside those refrigerators. They are very familiar with our garages, taxing the upholstery, the steel, and many of the parts under the hoods of the cars we drive. They’ve been inside our closets to tax our clothes, even our underwear. They’ve made secret visits to our bathrooms to tax the chemical called sebacic acid that puts the bristle in our toothbrushes. They have taxed the pencils that our children put in their school backpacks, and then taxed the backpacks, too, because they are made of textiles. The trade cops are as ubiquitous as they are unfair in how they rig the numbers to tax us.

            Secretary of Commerce Don Evans, of course, doesn’t see it that way. Evans’ understanding of international trade basically comes down to the self-righteous belief that America plays fair but foreigners don’t. In particular, Evans says that China is an “unfair” trading partner. “Free trade only works if both sides play by the same rules,” Evans told a business audience in Minneapolis-St. Paul last month. “And right now, China is not competing on a level playing field.” The secretary has put out the word that he is looking for antidumping cases that will help him tighten the screws on the Chinese and “level” that playing field.

            This is good news for a coalition of twenty seven domestic furniture makers from states like North Carolina and Virginia who have been railing against China’s exports of bedroom furniture to the United States, which shot up from $565 million in 2001 to nearly $1 billion last year. On October 31, the American Furniture Manufacturers Committee for Legal Trade — represented by veteran Washington trade lawyers Joseph Dorn and Stephen Jones of King & Spalding — filed an antidumping petition against China. The domestic petitioners are seeking prohibitive tariffs that would range from 158.7% to 440.9 percent. The petitioners have calculated how “unfair” China is, down to the last decimal point. Given the attitude in Evans’ Commerce Department, the American furniture industry is likely to prevail.

            However, even a cursory examination of the furniture trade between the United States and China strongly suggests that, rather than demonstrating any “unfair” Chinese trading practices, what’s going on is a model of what international trade is supposed to be about. The U.S.-China furniture trade is to the benefit of both countries.

            The economics of this case begin with the fact of life that low-wage China has a comparative advantage over, say, the Carolinas. What’s unfair about this? For years, the Carolinas have lured jobs from unionized, comparatively high-wage states like Massachusetts and New York; nobody south of the Mason-Dixon line has ever alleged that that has been unfair. Seeking trade protection merely because another country has a comparative advantage is pure protectionism.

            This isn’t to say that American furniture makers aren’t going through hard times. They are. “Petitioners’ operating profit margin declined from 12 percent in 2000 to 3 percent in 2002, and from 6 percent in January-June 2002 to a miniscule 1 percent in January-June 2003,” the King & Spalding lawyers note in their petition. “Petitioners’ cash flow fell by 60 percent from 2000 to 2002 and another 80 percent from January-June 2002 to January-June 2003,” the lawyers add.

            But those hard times would be even more difficult if some of the same U.S. antidumping petitioners themselves could not trade with the same China that they accuse of being unfair. Consider Kincaid Furniture, Inc., of Caldwell, N.C., which is a member of the petitioning coalition’s steering committee. Kincaid is a subsidiary of La-Z-Boy’s Case Goods Group — a major importer of furniture and one of China’s best customers. Steve Kincaid, who is president of Kincaid Furniture, told his local newspaper that he was joining the antidumping action because “we want to support a petition that would stop this illegal activity.” Go figure.

            The U.S. furniture industry is split over the issue of trade with China. Companies like Lexington Home Brands and Drexel-Heritage import about one third of their furniture from China, and understandably do not support the antidumping action. And another major American player in the furniture trade, Ethan Allen Home Interiors, has opened stores in Shanghai, Tianjin, and Urumqi, and wants to develop an entire chain of retail stores on the mainland.

            W. G. “Mickey” Holliman, the chairman, president and CEO of the St. Louis-based Furniture Brands is livid over the antidumping petition. “While this Petition’s stated goal of job preservation is noble, it is misleading,” Holliman declared in a strongly worded recent press release. “Since the prices we are paying for products out of China are generally comparable to those being paid for products out of other countries in the Far East, the assertion that Chinese manufacturers are engaged in unfair pricing is of questionable merit.”

            Holliman rightly points out that “to protect” the jobs of his U.S. work force of some 20,000 people, his company must be also allowed to source globally. “This anti-dumping effort is not in the best interests of our employees, the consumer, or our industry as a whole,” he asserts. “Blaming the Chinese for the inevitable consolidation of our industry is merely a distraction from our real challenge of remaining competitive.”

            Moreover, the Chinese are buying much of the oak, cherry, walnut, maple, and other hardwoods to make into furniture at market prices from America. According to U.S. Department of Agriculture data, U.S. exports of hardwood lumber to China shot up from $14 million in 1998 to $84 million last year. While the final numbers are not in for 2003, China has been on a track to buy perhaps $100 million in U.S. hardwood lumber this year. Southern states like Virginia have been actively pursuing this growing export business at trade fairs in Shanghai and Guangzhou. When Chinese businessmen buy American wood, nobody says that that is unfair.

            The U.S. antidumping petitioners cite a Chinese company named Lacquer Craft Manufacturing Co., as a “prime example” of China’s unfair furniture trade. Lacquer Craft is in the township of Dongguan in the Pearl River Delta region in southern China, near Hong Kong. Lacquer Craft, the lawyers note with apprehension, is a formidable competitor. The company is expanding in Shanghai, and also has invested “at least $25 million to purchase the brand name and sales and marketing network of Universal Furniture, which has long been a major player in the U.S. wooden furniture market.”

            That sounds like the Chinese are engaging in precisely the sort of market-based economic enterprises that businessmen are supposed to be doing. But to the petitioners, the very notion of commerce in southern China sounds unfair. “This region is such a large producer of wooden furniture that Akzo Nobel, a Dutch-Swedish chemical producer that is one of the world’s largest producers of furniture finish, has closed plants in the United States and Europe and is opening three new factories in China,” the antidumping petition declares. To the American Furniture Manufacturers for Legal Trade, such perfectly normal business decisions looks like a conspiracy.

            Of course, it is almost a foregone conclusion that Commerce officials will crunch the furniture numbers to make sure that anyone who imports bedroom furniture from China will face high tariffs. For the average consumer, initial estimates are that prices for bedroom furniture sets could increase somewhere between $1,500 and $5,000.

            Better shop early this year.