Trade Wars and Your Design Business

September 28, 2018In SD Blog, Design Business Advice, Inform, Interior DesignersBy Rachel

How Tariffs Affect Interior Designers

As interior designers, you generally don’t have to pay attention to the national news when it comes to your profession as the last thing you need is another source of anxiety to add to your daily business operations. However, the news about tariffs and trade wars coming out of Washington D.C. this past year has compelled designers to pay close attention and take into consideration how tariffs can possibly hurt their bottom line as well as the state of the entire design and home furnishing industry.

When it comes to the items, activities, proposals, lead times, pricing estimates, and mark-ups you enter into Studio Designer, the current reality of trade wars now must factor in. The Trump administration announced steel and aluminum tariffs in March that were implemented in June, with a 25% tariff on steel and a 10% tariff on aluminum from Europe, Canada, and Mexico. The goal was to increase the prices in imported goods in order to stimulate the domestic manufacturing industry and protect intellectual property to stop counterfeits. Whether or not tariffs will truly bring about these results is still under debate.

Our largest trading partner Canada was hit with 20% tariffs on softwood lumber, a key building material for U.S. home builders. More recently on September 24^th, a round of new tariffs came into effect for China, targeting $200 billion on 5,745 Chinese goods, many of which are essential to the entire housing industry—from raw materials to finished products.

The biggest problem with the trade wars sparked by the tariffs is that they were not planned carefully nor were they negotiated with our major trading partners before implementation. Europe, Canada, and Mexico consequently responded with their own tariffs on American goods which have already had a marked effect on American manufacturers. China also reacted swiftly with retaliatory tariffs on American goods totaling $60 billion.

Interior designers may not feel the immediate effects of trade wars but the higher prices on raw materials will lead not only to steep price hikes in furniture, lighting, and building materials. It will also put designers in a position where they cannot maintain consistent and reliable pricing for clients. Tariffs hurt American companies because their products become too expensive for foreign consumers and prices must go up for domestic goods to make up for the lost overseas revenue.

Major industry organizations like the American Lighting Association (ALA) and the Home Furnishing Association (HLA) have voiced their concerns about the tariffs’ cascading effect on lighting and home furnishing retailers as high prices cause ripple effects in the supply chain. The tariffs have directly affected home building companies with pricey Canadian lumber and commercial and multi-residential properties must contend with expensive aluminum and steel. It has caused the normal annual increase in building a home or remodeling to spike dramatically from 3% to 10% or more, causing deep uncertainty in the market. It is estimated that the trade wars have caused the average the price of building a new home to increase by $7,000.

The American Society of Interior Designers (ASID) noted that this year there was a dip in billings and inquires during a usually busy summer season can most likely be directly attributed to consumer uncertainty about the trade wars. When working with their trusted industry vendors from small boutique to mass retailers, designs must recalibrate their design plans because of potential material shortages, rising production costs, decreased profit margins, and price fluctuations.

Small design firms suffer the most with trade wars as larger businesses, especially in the luxury sector, can weather out the increased prices by stockpiling inventory and modifying business practices until conditions improve. It is clear that the current U.S. trade policy has put businesses in a tough spot when it comes to managing expenses and profitability but has put consumers in an even tougher bind when it comes to discretionary spending.

Ultimately, trade wars cause designers to sacrifice not only profit because of market conditions but also the full expression of their creativity. With market conditions like this, designers will have to make product and material compromises more and more to stay in budget, which in turn chips away at their design visions. Is the design industry set to lose the full expression of creative talents because of trade wars? Will consumers and clients ultimately stop spending their discretionary income on interior design and furniture? Once the U.S. establishes a level trading relationship with our major trade partners with trade fairness agreements, the volatility and uncertainty of trade wars will diminish.