Local furniture makers unfazed by Trump’s protectionism

Posted on 12 March 2018
 

Source: The Edge

 

Local furniture players are not that concerned about US President Donald Trump’s tough trade stance, although the US is Malaysia’s largest export market.

“The Americans will still have to depend on imported furniture, because they do not have that sort of infrastructure and labour force which would allow efficient furniture production. I don’t see any significant threat to us at the moment,” Johor-based LY Corp Ltd chief executive officer Tan Yong Chuan told The Edge Financial Daily. Nearly 80% of LY Corp’s revenue is derived from the US market.

 

Tan opined that Trump’s protectionist undertones seem to be targeting commodities and the high-tech industries, while the furniture industry could be off the president’s radar.

Evergreen Fibreboard Bhd chief operating officer Kuo Jen Chiu said the company is also not that concerned about the likelihood of import tariff on furniture. Evergreen Fibreboard is one of the largest medium density fibreboard (MDF) manufacturers in Asia. He believes that China is Trump’s target. “The US has imposed a lot of other taxes on China, even on the wood products. Hence, that indirectly, will actually benefit small countries like us, because we are relatively small to the US,” said Kuo.

When contacted, Malaysian Furniture Council (MFC) president Chua Chun Chai noted that Malaysia is considered a “very small player” to the US. “Malaysia exports less than US$2.5 billion (RM9.77 billion) worth of furniture, compared with China at more than US$50 billion,” Chua said. His view is that, if any, Trump will most likely impose taxes on big items, judging by items that have been slammed with tariff, for instance steel, aluminium, solar panels and washing machines. “We are lucky that steel and aluminium furniture in Malaysia is very minimal at about less than 2% [of the total exports],” said Chua.

In contrast, VS Office Furniture (M) Sdn Bhd, which steel and aluminium account for 20% to 30% of its production costs, expects the tariff on the two base metals will augur well for metal furniture makers.This will instead result in an oversupply of steel and aluminium in the international market, which in turn will reduce raw material costs, said VS Office chief marketing officer Alex Chen.

Last Thursday, Trump moved ahead with his controversial trade policy — imposing a 25% tariff on steel and 10% on imported aluminium. In 2017, Malaysia exported about RM10.14 billion worth of furniture, with the US accounting for RM3.59 billion, or 35.4%, of it. Of the total exported furniture, 79.5% were wooden furniture, compared with 6.9% of metal furniture.

Improving operating environment

Business conditions are getting more favourable for the labour-intensive industry this year, according to furniture makers who spoke to The Edge Financial Daily at the trade fairs last week. Most of them noted that there is also improvement in the labour shortage problem that many of them encountered last year. Meanwhile, raw material costs have stabilised.

“We were quite badly impacted by the temporary shortage of workers in our last quarter, but now that we have government approvals secured, our vacancies have been filled up,” said Wegmans Holdings Bhd executive director Collin Lim.

China the next hottest market

The US is currently the biggest consumer of Malaysian furniture, nonetheless, China is expected to be the next “hot” export market, said MFC’s Chua. “China is growing very fast. By the year 2027, we view China will be the biggest importer of furniture as well as consumer of furniture.”

Chua, who is also the managing director of export-oriented bedroom furniture maker Hup Chong Furniture Sdn Bhd, said sales to US have slowed down due to market saturation in the lower-end

products. Thus, the company is now moving up into the mid- and high-end products, and expanding its global presence into China, India and the Philippines this year.

Meanwhile, Federal Furniture Holdings (M) Bhd managing director Datuk Choy Wai Hin said that the company has reduced its dependence on the US and Europe. “We have weaned ourselves off dependence on the US and Europe for our export market. This strategy has worked very well for us now that the centre of gravity for global economic growth is in the Asia-Pacific countries that we serve,” said Choy.

 

“If the US trade policies actually result in an all-out international trade war, then global economic growth will certainly suffer, in which case exporters from every country in every industry, the US included, will be affected,” Choy said.



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