How The Cubicle Industry Is Affected By The New Tariffs
The increased tariffs ordained by the United States on products and goods coming from China raised the cost for many companies in the States. Tariffs are used as a way to bring back jobs into the United States. While U.S. tariffs on China could bring back and protect American intellectual property, the cost in manufacturing raises in return.
Manufacturing has caused the number of jobs to decline, especially since companies are offshoring their product to China. However, thanks to technological advancements, automations, offshoring and other developments, output for companies has increased.
Consumers may not have felt the increase of tariffs just yet, but manufacturers will be forced to raise prices and re-evaluate their supply chains. One industry in particular that suffer from the change in tariffs is the cubicle and office furniture industry.
What Changes Have Been Made To The Tariffs And How?
After a yearlong trade dispute between the United States and China, negotiators failed to produce a solution for maintaining taxes. A notice was sent from the office of U.S. Trade Representative, by Robert Lighthizer, and published in the Federal Register confirming a raise in taxes.
On Friday, May 10th, 2019 the United States raised the tariffs on imported goods from 10 percent to 25 percent. These tariffs stretch to over $200 billion dollars’ worth of Chinese goods. These goods range from machinery, vehicle parts, circuit boards, and many different materials used to build different products.
The increase in tariffs not only went up but also added $325 billion dollars of Chinese goods that were not currently taxed. This affected many small and large business’s in America.
While some Chinese companies offer to help on the new tariffs, most are not willing to pay the full difference in price. This leaves American companies on their own to figure out how to deal with the 15 percent increase, on top of the normal 10 percent.
What Happens To The Manufacturers?
With the new increase of prices on goods from China, many companies are going with the obvious option and moving production to other countries. The manufactures that are starting to help other companies out with the tariffs start to indirectly impact the quality of products.
Manufacturers are starting to scramble to cut costs in materials and whatever way they can, resulting in products being made poorly. They are starting to use new techniques, tools, and changing the types of materials used. In return, this is creating a cheaper product decreasing its quality.
Global taxing is becoming more difficult when starting to include supply chains opening, borders dissolving, and new engineering tactics are being used contributing to the price of end products.
Foreign competitors who source materials and parts from China won’t see price increases due to the U.S. tariffs. They will export to the U.S. with more competitive pricing than domestic manufacturers.
Domestic manufacturers will also experience cost increases either directly or indirectly from the tariffs. Many manufacturers rely on imported parts and materials like steel and aluminum so there will be an increase in cost to deliver their final product.
If a manufacturer were able to source locally, because of supply and demand; there would also be a cost increase to them and their customer as well due to production capacity restraints and material shortages.
Will The Consumer Be Expected To Pay Higher Cost?
Although many companies in the office furniture industry are American made, they are still receiving materials from overseas. Unfortunately, for office furniture retailers not only the tariffs increase but the price of steel did as well.
Seeing as many steel companies have closed in America, the tariffs on steel were raised to 25 percent as well. This was a shot at helping the U.S steel makers out in hopes that it would provide more jobs and halt the consumption of steel through China.
Many products that come from an office furniture manufacturer include steel or materials that are shipped over from China. In result, raising the price of steel eventually means the price will raise for the consumer too.
However, companies want to keep their prices matching or close to their competitors. With the new tariffs, many are finding it hard to reach a median. Furniture stores altogether are starting to see a two to three percent increase in prices when they purchase furniture or goods from other suppliers.
What Makes A Cubicle Manufacturer Unique In This Situation?
To change manufacture’s the company would have to almost start completely over. Each manufacturer requires a mold of the part or piece the company is making or selling. These molds include every piece that is apart of the furniture itself. Once these molds are configured properly, then they must make sure all the pieces and parts fit together.
To get the parts perfect it may take a few tries, pushing back the time on when the product will be ready for production. Factoring in shipping time to and from the U.S is also something to consider, as well as cost.
Since office furniture has many different components that make up the finished product; the number of molds needing to be perfected is astronomical. Although the business may already have these molds at their current manufacturer; everything must be new so sizes can be figured out on the new manufacturer’s machines.
Once everything seems to work together properly you still have quite some time before you are ready for production. Now all the products and pieces must go through safety test (ex: fire). The company has already paid for the molds and testing once at the original supplier.
After all the testing is approved, the company can then start production in hopes that everything goes perfectly.
On top of picking up everything and moving to a new country to find a different manufacture; the time and cost that it would take to complete all the task are quite significant.
Creating molds, testing and materials alone would be a significant cost. However, the real cost starts to add up when factoring in how much time the company would lose during the whole process.
The average amount of time completely out of production would be around six months if not more. Many companies cannot survive six months with no production or sales. Therefore, many companies are choosing to stay with their current supplier and find a way to maintain paying the taxes.
For Companies Who Stay With Original Suppliers.
While large brands usually have stockpiles of their inventory, small business’s generally do not. This means once they run out of the raw material that they have on hand; they are forced to bite the bullet and find a way to cover the taxes on the newly priced material.
With the price of tariffs being raised, the cost of production increases too. U.S. companies are experiencing consumers reducing the normal spend amount due to the new prices. Additional price increases from short-term shortages and production constraints as manufacturers and suppliers look for alternative sources when the tariffs went into effect. Protracted lead times are likely for the same reason.
Looking at all the options that are available to implement within the company, some are easier to make than others. Finding other countries to get supply from is one of the many options, however companies must always remember to layer in freight costs
Many businesses are proactively trying to work with their supply chain partners in China on ways to decrease the impact of the tariffs.
When it comes to most companies, finding materials is simple and there are many different options and manufactures that a company could go to. Companies can easily find competitive prices and choose which one they would prefer to work with.
However, with cubicle manufacturers, some require very specific details and formulations for certain products. This makes it much harder to leave a great manufacture and find another somewhere else.
Though many companies struggle with the new tariff’s, cubicle manufactures, and office furniture companies were hit particularly hard. The new tariffs have not only hit a large portion of the cubicle industry’s shipment, but also their materials too.