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Tom Russell

Stronger Chinese currency might raise prices on imports

Anyone doing business with China has no doubt followed news stories about how a number of  U.S. politicians would like to see the country’s currency, the yuan, rise in value against the dollar. Specifically, some who represent states that have lost manufacturing jobs to Chinese competitors would like to see it revalued by at least 25%. If that doesn’t happen they plan to seek to place a 27.5% duty on Chinese-made goods.

On one hand, you could argue this would help the remaining manufacturers here compete on a more level playing field with China by indirectly forcing Chinese-made goods to be sold at prices closer to their U.S.-made counterparts. In that respect, it could save U.S. manufacturing jobs. However, the jobs that are already lost aren’t likely to return anytime soon, no matter how much the yuan rises against the dollar.

But China knows that allowing the yuan’s value to rise too much could dampen the country’s flourishing economy by reducing demand for its exports. That in turn could cause job losses and social upheaval in a country that is just beginning to enjoy some of the economic freedoms we have in the United States.

China’s central bank recently agreed to let the yuan rise or fall up to 0.5% in daily trading, up from a current daily limit of 0.3%, according to the New York Times. This may not sound like much, but it could affect the price of Chinese-made furniture moving forward. In less than two years since China began to let they yuan float against other foreign currencies, it has risen more than 7% against the dollar.

“Whenever the currency value changes, it will affect the price of furniture,” said Jamie Collins, vice president of sales and marketing at case goods importer HomElegance. “It’s hard to say much more than that because it’s early and there are so many other factors affecting Chinese furniture now.”

Those factors — which include everything from rising costs in raw materials, energy, shipping and labor, and lower Chinese tax rebates on finished goods — all place pricing pressure on manufacturers and importers selling furniture in the U.S. market. And the last thing a U.S. retailer wants to hear about in a slow economy is a price increase.

“It’s become a real issue,” said Richard Tallin, president of accent and occasional specialist A A Importing Co. “Prices are definitely going up at a time when selling prices on the other end can’t move. But these guys (the manufacturers) are refusing to do stuff at the old prices. They’d rather not take the order than run the risk of losing money.”

The question importers are asking now is how to avoid or minimize such increases. As Furniture/Today noted in a special report on Asian sourcing published in early May, many importers want to keep their sourcing focused in China. Yet others say the cost issues will force them to look to other countries.

“Obviously, if it (the yuan) gets much stronger, it would have an impact by giving an incentive to go other places,” said Bill Kemp, president of case goods importer Kemp Enterprises. “But personally, I don’t think you will see much movement. It will be a gradual strengthening, like we have seen.”

Still, the currency issue raises the ire of many importers, who claim the U.S. government is wrongly trying to interfere in the increasingly global economy.

“It is our government putting pressure on them, but I don’t see how that will help us,” said Tallin of A A Importing. “It will only add to the inflation here — it will make the cost of the goods we buy from them go up.”

Given the amount of goods being made in China, these pricing issues affects many industries, not just furniture. That said, consumers will likely want to pay some attention to what’s happening in China — and Congress — in the coming months.