Back in February, I described Hidden Gems recommendation Hooker Furniture's (NASDAQ:HOFT) role in the American Furniture Manufacturers' efforts to punish Chinese companies for "dumping" bedroom furniture on the U.S. market. (You can read all about Hooker's initial support for imposing tariffs here, and how Hooker came to its free-trade senses here.)
Hooker initially backed the tariffs in order to protect its U.S. workers. (The company manufactures its bedroom furniture domestically, although it outsources the production of much of its other furniture.) But Hooker's customers, such as retailers Neiman Marcus (NYSE:NMG.A), Dillard's (NYSE:DDS), and Berkshire Hathaway's (NYSE:BRK.A) Nebraska Furniture Mart, objected that they liked the low prices on imports -- after all, they also import furniture themselves. Hooker quickly realized that its pro-tariff position was upsetting customers and endangering sales. At the same time, Hooker's suppliers were understandably angered at their customer for trying to get them punished for charging low prices that that same customer had helped negotiate.
The situation called for a tactical withdrawal, which Hooker made post-haste, leaving it to companies such as La-Z-Boy (NYSE:LZB), Bassett Furniture (NASDAQ:BSET), and Stanley Furniture (NASDAQ:STLY) to carry on the fight. Well, the battle ended on Friday in a Pyrrhic victory for the pro-tariff coalition. Here's the body count:
Seven Chinese companies, collectively controlling about 20% of the $2.5 billion U.S. bedroom furniture market, will be assessed tariffs ranging from a high of 24% all the way down to the token amount of 5%. So in some cases, state taxes will have more of an effect on their sales than will the tariffs.
Another 82 Chinese companies, holding another 20% of the market, will get an 11% tariff -- a rate so low that TheWall Street Journal commented: "consumers might not even notice."
The rest of the Chinese furniture companies, although they number in the thousands, have only a combined market share of about 10%. These companies failed to prove that they were not dumping, and so essentially accepted a near-200% tariff by default. (Oops.)
In the final analysis, I call the tariff supporters' victory Pyrrhic for three reasons. First, they angered furniture makers in China, with whom they will likely have to do business in the future. Second, they angered their own customers. Bassett, in particular, is suffering for this, saying it has already lost $8 million in sales over the debate. Finally, with 80% of the Chinese customers being assessed only minimal tariffs, this battle was simply not worth winning.
Meanwhile, by playing Switzerland in this war, Hooker stands to reap the benefits of neutrality.
Fool contributor Rich Smith owns no shares in any company mentioned in this article.
