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Policy Implications

An Overview

As overseas low-cost production has dramatically changed furniture manufacturing in recent years, an examination of the public policy associated with the industry allows us to understand the phenomenon more. Specifically, concerns about unfair trade advantages benefiting the Chinese have dominated discussion and many US manufacturers demand an equal playing field. Nonetheless, China has already irremovably positioned itself in the market, so future policy must show foresight and consideration for the United States industry. This section of the website will detail trade policy with China and its implications, and will also draw attention to proposed policy that might save North Carolina’s furniture industry.

Trade with China

Globalization has encouraged the relaxation of import control rules. By doing so, cheap imports, especially from Asia and Latin America, have saturated the domestic furniture market. Globalization shows no signs of stopping and the industry continues to lose market share relative to imports. This is attributable primarily to globalization friendly agreements, including the North American Free Trade Agreement (NAFTA), Free Trade Area of the Americas (FTAA), and the World Trade Organization (WTO), which favors wider market access1. When practiced fairly, free trade is generally considered economically sound. However, furniture manufactures in the United States are not pleased with foreign producers, most notably the Chinese, because they are not playing fair. In particular, US manufacturers claim China has been "dumping" cheap wooden bedroom furniture in the United States to harm American manufacturers. In the United States, a product must satisfy three conditions before it is deemed to have been dumped into the market. Those conditions are: US manufacturers' factual injuries caused by the product; the product's price is lower than its domestic price or cost; and the link between the two. Many Chinese enterprises are accused of dumping because they receive government subsidies, which, other nations' manufacturers contend, allows them to sell their products for less than cost . In January 2004, The U.S. International Trade Commission voted unanimously that Chinese furniture makers had been dumping cheap wooden furniture and in response, US manufacturers asked the Department of Commerce to impose tariffs - ranging from 158.74 per cent to 440.96 per cent - on China's furniture producers 2. Such high-tariffs would undoubtedly raise the prices of imported furniture in America and perhaps allow the industry to recover. Nonetheless, as the dumping case rages on, conflicting opinions exist domestically as well. A group of US furniture retailers have vowed to fight the lawsuit because they argue US manufacturers helped create China's furniture industry over the last several decades, as they turned to the country for cheap labor. Furthermore, these manufacturers argue that globalization of the industry has already irreversibly occurred and now US producers must evolve their organizations to fit the new industry.

Future Policy and the Comparative Advantage

In an industry where success is primarily determined by cost, many argue that North Carolina manufacturers should continue to outsource low-wage labor from China. However, in a report released by the University of North Carolina’s Kenan-Flagler Business School, a plan to operate cost efficiently, while still employing state residents, was proposed. Specifically, the report cites that a reduction in overhead costs and a focus on the comparative advantage held by US manufacturers can save the industry. According to the report, "overhead costs represent 33% to 37% of wholesale revenue for U.S. manufacturers. If overhead costs could be reduced, U.S. products could be priced more competitively against imports. One method to reduce overhead is consolidation. The highly fragmented furniture industry is full of duplicative departments and employees. The accounting and logistics departments at two different companies could be consolidated to one department in a merger or acquisition. In addition, consolidation between large retail and manufacturing companies could reduce steps in the supply-chain and help manufacturers compete better against low-cost imports3 ". As for the comparative advantage held by North Carolina manufacturers, there are three advantages that could save the case goods industry: design, finishing, and retail. It is commonly believed the Chinese have not been able to replicate US designs and finishes to the demands of American consumers. "North Carolina’s other competitive advantage resides in its enormous retail markets in High Point and Hickory. High Point in particular has cultivated an international reputation that is unparalleled among other manufacturing cities. By maintaining the mystique of High Point, the state will continue to see tax revenue from furniture laborers, particularly on the retail side3".
In sum, while much of the furniture industry has been lost abroad as the global economy spreads, North Carolina is not necessarily doomed for failure. While import tariffs are certainly a policy response to dumping concerns in China, domestic, business-friendly policy could also allow manufacturers to enjoy their comparative advantage. Instead of allowing the whole furniture market to go abroad, North Carolina furniture manufacturers must exploit the three proposed advantages, for the benefit of the industry, but also the North Carolina labor force and economy as well.

© 2004. last updated: April 28, 2004
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