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Tariffs: not a simple problem

 9 August 2021     Michael J. Knell 

I have never made any secret of the fact I am something of an economic nationalist. If Canada is to remain a truly democratic nation governed by the rule of law with a free market economy, it must be able to provide the necessities of life to the people living within its borders. We have to be able to feed, clothe and shelter all of our citizens and residents.

To apply this to the industry’s current crisis revolving around the Canadian Border Services Agency’s (CBSA) decision to impose anti-dumping tariffs on imports of motion furniture and leather stationary upholstery from the People’s Republic of China and the Socialist Republic of Vietnam isn’t as big a leap as one might think.

It’s important this country be able to manufacture furniture. It still staggers me the powers that be allowed the end to major appliance manufacturing in this country. No one makes a standard 22-cubic foot refrigerator or any of the so-called five core appliances (which include ranges, dishwashers, washers and dryers) in this country anymore – it’s something we’ll come to regret. So, it’s necessary to ensure the continued survival of Canada’s shrinking upholstery industry, although admittedly I’m unsure of the means to accomplish such a goal.

Those opposed to the tariffs are not wrong when they complain about the impact they will have on pricing to the consumer or the hit they will take on the financial performance of Canadian retailers. Neither are they incorrect when they note the inability of Canadian upholstery manufacturers to meet their product requirements.

But in their argument, they really don’t address the heart of the matter. The PRC and its client state are breaking the rules and we need to find a balance that ensures the Canadian industry survives.

The five complainants who sought the tariff are right when they accuse the PRC, in particular, of flouting the regulations laid down by the World Trade Organization – something they freely joined in 2003 – and dumping their product into the Canadian market by illegally subsidizing the cost of certain key components. In fact, during its investigation the CBSA found 26 instances of illegal subsidies provided by the government of the PRC to its manufacturers.

As several leading lights in our industry have noted, the real danger to Canadian retailers who rely on product from the PRC to stock their warehouse shelves and fill the pages of their flyers is the real possibility the government of the PRC – for whatever policy reason – will decide to phase out these subsidies, whether immediately or over a period of time. Until that happens, upholstery producers in the PRC have a component cost advantage of roughly 60%. When they lose that – as basic economics says they must at some point in the future – their pricing will skyrocket and that’s before the cost of freight.

So, having a Canadian source of supply would be advantageous in this case.

The other thing the tariff opponents haven’t considered is the PRC is not Canada’s friend and ally. It is a brutal dictatorship that believes it doesn’t have to abide by the agreements it has made or by the conventions of international law. If it did, why is it threatening to execute two Canadians for crimes they didn’t commit in retaliation for our government’s lawful decision to consider an extradition request from the U.S. government seeking the arrest of a prominent citizen of the PRC?

These two issues are connected. That’s evident to anyone who reads any news journal practicing professional journalism.

Imposing the tariffs won’t solve the industry’s problems. At best, it will slow the slide and give domestic upholstery makers time to regroup. It might also give retailers reason to reassess their own needs and merchandising strategies.

Upholstery manufacturers face a host of challenges, in fact too many to list here. I have talked to many of their executives. They know they need to invest in their businesses. They need to train, retain and hire good people. They need to improve their manufacturing processes. They need to step up their designs and broaden their assortments.

But when those who control 60% or more of the market start out with the 60% advantage in the cost of key components, it’s a disheartening, uphill battle. 

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This HGO article was written by:
Michael J. Knell
Michael J. Knell

Michael is the publisher and editor of Home Goods Online. A seasoned business journalist, he has researched and written about the furniture, mattress and major appliance industries in both Canada and the United States for the past three decades.

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