Chinese furniture makers, hard hit by a higher tariff on exports to the US last month, see a ray of hope from the apparent trade detente between the world’s two largest economies following the G20 summit in Japan last month. The agreement between US and Chinese officials to resume economic and trade negotiations has been welcomed by furniture makers who say their US buyers have practically disappeared since their goods were subject to a 25 per cent levy on June 1. The tariff replaced a 10 per cent levy imposed by US President Donald Trump on furniture and other Chinese-made goods since September. “The trade tensions appear to be so volatile that we have no clue on how to adapt to the fast-changing situation,” said Zhang Xiaojun, a senior sales manager with Haining Mengnu Group which exports about 2 billion yuan (US$291 million) of sofas and other home furnishings annually to the US. “We are expecting the governments to reach a deal soon and scrap the tariffs imposed on our products. After all, it is a do-or-die game for Chinese furniture companies.” Furniture makers rank as the industry most affected by the new US tariff regime on US$200 billion worth of Chinese goods, according to China International Capital Corp (CICC). The investment bank estimated the levy will be equivalent to about 34.2 per cent of last year’s profit for the sector. Mainland furniture makers produced 701 billion yuan worth of goods in 2018, up 4.3 per cent from a year earlier, according to the China National Furniture Association. Furniture shipments to the US account for around 10 per cent of Chinese annual output, or about 70 billion yuan worth of goods. Zhang said the higher duty had been devastating for his company which is heavily reliant upon exports to the US. “The 25 per cent additional tariff was detrimental to us because American merchandisers balked at the lofty prices after paying the tariffs,” said Zhang. “It indeed killed our business.” In Guangdong, dozens of furniture makers have lost their business in the US market owing to the tariffs, according to a Dongguan-based company executive who asked not to be identified. These companies are taking a wait-and-see approach toward the trade truce, the manager told the Post , adding that they see positive signs after President Xi Jinping and Trump agreed to restart trade talks during the G20 summit. The impact of the trade war can be seen in the lagging share prices of furniture companies that export to the US. Jason Furniture, a Hangzhou-based maker of sofas and beds, derived 38 per cent of total revenue from exports in 2018. The company’s Shanghai shares have slipped 1 per cent since the start of the year, trailing a 13 per cent gain in the benchmark Shanghai Composite Index. The company reported profit in the first quarter was up 10 per cent from a year earlier, compared to a 20 per cent gain last year. China Securities said in a May report that Jason Furniture has been planning to set up plants overseas and adjust its customer base to help mitigate the impact of the US tariffs. Efforts to streamline its manufacturing processes, coupled with a softening yuan, should also help the company to lower cost of production, the broker said. Some Chinese furniture manufacturers said their lean manufacturing operations and low margins left them with limited ability to adjust prices in the face of the levies. Zhang said adjusting prices by as little as 10 per cent would effectively destroy all profit on sofas shipped to the US, given Mengnu’s low margins. Trade war: US and China agree to tentative truce before G20 summit “A 25 per cent tariff is a death sentence to Chinese furniture companies like us since our net profit margin stays at about 5 per cent,” he added. “We cannot afford a further price reduction.” Other furniture manufacturers were more optimistic. Feng Rong, a manager with Boeason, a wooden furniture maker based in Cixi, Zhejiang province, said the labour markets could help absorb some of the effects. “China is still a growing market with millions of people looking to improve living conditions,” Feng said. “Some 10 per cent of the total output can be digested in the domestic market over the next two or three years.” Other manufacturers said China’s domestic demand was beginning to overtake exports as a growth driver. “It is not unusual nowadays to see a customer order furniture products worth 300,000 to 400,000 yuan because they are wealthy enough and want to use premium furniture to display their social status,” said Ni Yanan, a sales manager with Shanghai-based furniture company A-Zenith. “The domestic market still has big potential.”