Acton Commentary

Free Trade and the Future of Furniture

These remarks are an edited version of a speech given to the GrandRapids Area Furniture Manufacturers Hall of Fame on October 5,2004.

Grand Rapids furniture burst onto the national scene at thecentennial furniture exposition in Philadelphia in 1876. By 1900, 40 percent ofeveryone employed in the greater Grand Rapids area was working in thefurniture industry. Grand Rapids was widely known as “The FurnitureCity”. For 50 years, until the mid 1920s, Grand Rapids was the center ofhome furniture manufacturing in the United States.

A severe furniture recession began in 1926. The depression thatfollowed wiped out most of the home furniture manufacturers in GrandRapids. By the 1930s, Grand Rapids lost its dominant position in theindustry. The new centers of home furniture manufacturing were NorthCarolina and Virginia, which enjoyed low labor rates, ready timber, andnewer plants and equipment.

Nowadays the furniture manufacturing industry is going throughanother era of dramatic change. This time the competitive threat comesfrom furniture plants outside the United States, in places like China.Those of us most affected are asking ourselves, “Is free trade really agood thing?” “Where are we headed?” “Is it all just a race to thebottom?”

History teaches us that free trade brings prosperity, growth, andhigher living standards, benefiting both rich and poor. The adjustmentsforced by economic freedom, though gut-wrenching for those of usdirectly involved, result in the most efficient and effective use oftime, talent, and capital in the long run.

That may be, but it's hard to keep in mind when we're rolling througha wringer! Sometimes, a commitment to economic freedom may not seem tobe in our own short-term self-interest. Our moral responsibility,though, is not only to look out for our own interests but also toconsider the good of our fellow human beings around us and around theworld.

The pain of economic adjustments aside, candor insists that weacknowledge the benefits of an increasingly free world. For example,world poverty has fallen more in the past 50 years than in the previous500. In the past 40 years, average income in the world almost doubled.The poorest fifth increased the most, more than double. The richestfifth also increased but at a lesser rate, 75 percent. World hunger isdeclining. Undernourished people in developing countries declinedprecipitously from almost 40 percent in 1970 to less than 20 percent today.

In the market economies of the world, there is social mobility - andthat means opportunity. In the United States for example, those fallingbelow the poverty line only stay there an average of four months. Ninetypercent of Americans belonging to the poorest one-fifth in 1975 hadmoved up to the wealthiest two-fifths 20 years later.

Twenty years ago there were over 400 wood furniture plants in Taiwan.Today there are virtually none. Wages increased to such an extentthat high labor content products like wood furniture could no longer becompetitively produced in Taiwan. Now Taiwanese factories concentrate onmore sophisticated, high tech manufacturing. Market freedom positivelytransformed Taiwan in just a couple of decades.

Today China and other Asian countries are bustling with woodfurniture plants. A high percentage of wood home furniture production islabor, so the manufacture of wood home furniture has always shifted tolower labor rate areas. Furniture manufacturing has always been at theleading edge of economic renaissance.

In the year 2000, Chinese furniture factory wages were about a dollara day. People came from the inner provinces by the tens of thousands toearn wages for the first time in their family history. Prior generationshad lived off the land. Capitalism is working its magic in China. Wageshave already doubled since the year 2000. And in China, economic freedomis arguably the best chance to peacefully break communism's death gripon political freedom.

We can see the good that the globalization of furniture manufacturingis doing in the world. But what about those of us working in furnituremanufacturing in the United State? If we are concerned about the poorand those on the margins of society, then we have an obligation tosupport policies that promote the freedom that enables people to obtainwork and better their situation.

A specific example is the issue of dumping. A trade studycommissioned by the American Furniture Manufacturers' Associationreported in the spring of 2003 that Chinese producers of wood bedroomfurniture may be dumping, in violation of U.S. trade law.

Most people think dumping means a factory is selling below cost. Buta feature of U.S. trade law figures it differently for China and othercountries with so-called “non-market” economies. law says that even if a Chinese factory produces more efficientlythan a factory in a “surrogate” country like India, the China price mustnot be lower than the price would be from India, or if it is, there isdumping.

In the fall of 2003, furniture companies including Bassett,Vaughn-Bassett, La-Z-Boy, Casegoods, and Stickley, filed an anti-dumpingpetition against China manufacturers of bedroom furniture. The CEOsinvolved felt sincerely that if there is a law on the books that mighthelp protect their American workers, then they had a moral obligation topress for compliance.

A group of companies including Drexel-Heritage, Henredon, Lane, andThomasville, disagreed. They claimed that anti-dumping tariffs would bea violation of free trade (by which all people benefit the most), thatthe U.S. trade laws in this area are ill-conceived, and thatanti-dumping tariffs won't save American jobs.

In June 2004 the U.S. Commerce Department announced its preliminaryfinding that Chinese manufacturers are dumping bedroom furniture in theU.S. The Commerce Department set preliminary tariffs ranging from about5 percent to almost 200 percent, but averaging about 11 percent. The corporate petitionersfelt that their claims had been validated.

But the petitioners missed the point. Essentially, no American jobswere saved. Bedroom furniture production shifted to places such asBrazil, Indonesia, Malaysia, Thailand, and Vietnam. Chinese bedroomfurniture factories shifted to production of other wood furnitureproducts. U.S. furniture factories continued to close. Costs ofdisruption and transference were high. Actually it looks like nobodywon, except, perhaps, the lawyers.

So what's necessary now is what's always been necessary. Any plant--inGrand Rapids or elsewhere--must be world competitive and continuallyimproving in order to survive and thrive.

In reality, free trade is by nature fair trade. Free trade means weeach decide where to buy our goods, without extra costs being imposedfrom on-high just because the goods cross an international frontier.

Manufacturers can file petitions, but tariffs harm consumers andretailers. Ironically, tariffs don't even work effectively in protectingAmerican factory jobs.

So, when we recognize the virtues of market freedom, if we areprincipled in our thoughts and actions, we are compelled to upholdfreedom even when it rolls us painfully through the wringer of globalcapitalism. What we find is that the improvement that we are compelledto make to keep up also ends up helping us in the long run. Acting withthe good of others in mind has a way of benefiting everyone.

Our job is what our job has always been: to change, to adapt, toprovide customers with superior value in a way that delivers acompetitive financial return. As ever, a daunting challenge. Lookingaround this room at the talent and dedication of the people hereassembled, I have no doubt that the challenge will be met.