As hoteliers prepare their budgets for 2025, the possibility of tariffs on imported furniture and other goods may cause financial headaches. Even if nothing is enacted yet, procurement experts advise hoteliers to educate themselves and prepare now.
Throughout his election campaign, President-elect Donald Trump proposed tariffs on imports to boost U.S. manufacturing. Leading up to the election, he touted a plan to impose a 20% tariff across the board, and up to 60% on goods imported from China. Recently, he said he wanted to impose a 25% tariff on all products coming from Canada and Mexico, and an additional 10% on goods from China, the Associated Press reports.
Tariffs, rather than cost a foreign company or country more, are a tax collected by U.S. Customers and Border Protection and paid for by the U.S. company doing the importing. That extra cost is typically passed on from the importer down the line eventually to consumers.
While Congress must generally approve the creation of new taxes, Section 232 of the Trade Expansion Act of 1962 allows the president to impose tariffs on imports deemed a threat to national security.
Any hotelier hoping to beat the potential implementation of tariffs on imports needs to keep in mind how the process works.
“If we order today, nothing is going to ship before the inauguration anyway,” said Alan Benjamin, founder and president of hospitality procurement firm Benjamin West. “We’ve got our holidays, the Chinese New Year and everything else. None of this is going to be in place. It takes time.”
How new tariffs would affect hoteliers
Though it’s still unknown what exactly will happen with these proposed tariffs, hoteliers should be doing extensive planning right now, said Neil Flavin, chief operating officer of asset and hotel management at HVS.
“They do need to plan for the purchasing of goods and, to some extent, services prior to any of these tariffs going into place,” he said.
Flavin recommends hotel owners — particularly owners of smaller hotels — who are looking to finance a renovation or major furniture, fixtures and equipment purchase should do so now, even if they don't order right away. If interest rates go back up because of tariff-related inflation in the future, owners can at least secure their loans at lower rates now.
The rationale behind tariffs is that they spur the manufacturing and purchasing of more U.S.-made products.
“That's going to potentially drive up prices of the goods that are produced in the United States, because businesses are going to say, ‘Well, they're going to pay that whether they get it from me or whether they get it from another country, so why shouldn't we charge more and increase our profits,’” he said. "That's going to create a domino effect.”
During the pandemic, when U.S. companies couldn’t get materials from China or Vietnam because production shut down, prices generally went up as supply decreased, Flavin said. The capacity to produce any of these goods in the U.S. is much smaller than the overall demand.
Along with higher prices, buyers can also expect longer lead times, he said.
“If you’re trying to avoid a tariff and buy [from American manufacturers], their ability to get it to you quickly is going to be based on the amount of demand they get,” he said. “They’ll probably get more demand, so the turnaround time, I would imagine, would be slower.”
With higher costs getting passed down the line to consumers, those consumers will reach a tipping point, Flavin said. Hotel guests are going to reach a point where they cut back on travel because rates have gone up so much already, along with the costs of other goods and services they buy.
“They're already reaching a point where they're cutting back on vacation spending and hotels,” he said.
Transient leisure travel saw a boost in demand following the pandemic, but that has softened as it stabilized, he said. Higher costs related to tariffs will result in higher household spending to make everyday purchases.
“Where are they going to cut back?” he asked. “Therefore, where are owners of hotels — and anybody else that needs [furniture, fixtures and equipment] — where are they going to cut back?”
How brands will respond is another question, he said. It remains to be seen how hotel brand companies will adapt their brand requirements as the cost to do a renovation increases further.
“Brands have become slightly more flexible since the pandemic, but they are beginning to hold a little bit of a harder line as to meeting the brand standards and doing the renovations that are required,” he said. “But I have discovered that they are or can be negotiable to a certain point.”
A history on recent tariffs
The U.S. hotel industry has been operating for nearly a decade with two tariffs that apply to bedroom furniture coming out of China, Benjamin said.
The first one is what’s called an anti-dumping tariff, which started in January 2005, that’s aimed at goods sold below manufacturing cost, something considered to be an unfair trade practice, he said. This created a tax that ranged from zero percent up to 198% for certain products coming out of China, and the amount depended on the factory producing the goods.
Not every factory was making furniture below manufacturing cost. Even some of the biggest factories didn’t have a tariff on their products while others had 3%, 7% or 10%, he said. One major case goods supplier for Marriott International and Hilton programs had a 198% tariff when the ruling first went into place, though the factory had the opportunity to appeal.
During his first administration, Trump implemented a 25% tariff on all products from China, he said. There were some exceptions, such as sofas based on weight or items made from bamboo.
The cost of these tariffs is based on the first cost of the product before it leaves China, he said. It’s not on the price that a company like his would pay, or what an owner pays on the purchase order.
The 2005 tariff on bedroom furniture led many hoteliers to seek out manufacturers in other countries, particularly in Vietnam, Benjamin said. The Trump administration’s tariff drove even more manufacturing to Vietnam. Most factories in Vietnam, however, are China-original factories or have dual manufacturing in both countries.
“I’d say we buy more hotel case goods from Vietnam than we do from China, but a lot of component parts are still coming from China,” he said.
Some people try to game the system with components from China assembled elsewhere, he said. They’ll ship the components or nearly completed goods to be finished in another country.
“The government’s not stupid, and they’re monitoring this and pulling containers and looking at what’s coming in and how it’s labeled,” he said.
In terms of hotel furniture, fixtures and equipment, many components still come from China, such as metal drawer glides and bases for desk chairs, Benjamin said. For guestroom lighting, both hard-wired and plug-in, he estimated about 90% of those components are made in China.
“So, even if a hotel owner thinks they’re buying lighting made in America, a key point would be the difference between made in and assembled in, and a lot of lighting component parts are in China,” he said. “Vietnam really just doesn’t have that industry yet.”
Looking beyond China
The entire sector of hospitality interior furnishing makes up a tiny part of the world of interior furnishings, Benjamin said. Residential furnishing is the clear leader, making up 80% to 85% of total volume. Since residential interior furnishing drives the main raw materials and factor production, that sector may squeeze out raw materials and factor production for hospitality from non-Chinese sources.
However, a vast majority of these factories make furnishings for multiple sectors as a way to hedge their bets when the economy swings up and down, he said.
When looking outside of China, Vietnam does not have the capacity to take on a full shift in demand from China, he said. China, however, could absorb 100% of Vietnam’s production without blinking.
“The other way around is not even close,” he said. “Vietnam physically doesn't have the space, doesn't have the second- and third-generation furniture manufacturers. It's just not possible."
Benjamin said he learned recently from a colleague that a major retail manufacturer is looking to invest as much as $80 million to $100 million in first-cost production out of Cambodia. The problem, however, is there’s no support infrastructure built up there yet.
Not every part of a hotel room comes from China, Benjamin said. Most solution-dyed nylon carpet for rooms comes from the U.S., as does most vinyl wall coverings. Companies can source fabrics from the U.S., parts of Europe and other parts of Asia.
For wood bedroom furniture, most of that production comes from China, he said. There are exceptions, but there’s a cost and issue of capacity.
For such furniture sourced and made in the US., much of it tends to be in the middle to lower end of the market with more simple designs, mostly because of the labor costs, he said. Intricate designs, veneer inlays and other labor-intensive finishes can create a big cost delta when compared to furniture made in China to the point of being cost prohibitive.
As for capacity, the amount of four- and five-star production in the U.S. is not enough for Benajmin West, let alone the entire industry, he said. There’s some production in Latin America and South America, but those are more niche players.