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Why Furniture Stocks Have the Most to Lose from Trump's Latest Tariffs

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The White House on Wednesday announced that it plans to impose additional tariffs of 10% on $200 billion worth of Chinese exports, intensifying the trade war with China.

This new round of tariffs follows very shortly after the 25% tariffs that went into effect against $34 billion of Chinese goods last Friday. Even though this new tariff wouldn’t hit for at least two months, it would affect a number of products, including key consumer goods, which could potentially result in a much stronger reaction against the trade dispute.

The Target

The tariff that went into effect last Friday mainly applied to raw materials, and only 1% of the items on the list were consumer goods. This round, things are a bit different.

The targeted consumer products include fish, luggage, tires, dog leashes, handbags, baseball gloves, electronics, apparel, mattresses, and furniture.

Furniture Companies and Stocks

In response to the new tariff plan, Goldman Sachs analyst Matthew Fassler said, “The biggest negative surprise for our covered consumer sector vs. our economists’ prior expectations relates to furniture.”

According to Fassler, 65% of furniture imported into the US is from China. Home furnishing giants such as Restoration Holdings (RH - Free Report) , Williams-Sonoma (WSM - Free Report) , At Home Group (HOME - Free Report) and Wayfair (W - Free Report) are all at risk here.

RH, for example, imports as much as 77% of its dollar volume from Asia, in which the majority is from China. As 40% of its cost of goods sold is from China, with the new tariff, its gross margin would decrease.

If other home furnishing companies have similar costs, they would all be hit by similar decreases in their gross margins.

Bottom Line

After the White House made its announcement, the S&P 500 index lost 14 points, or 0.5 percent, and the Dow Jones Industrial Average dropped 144 points, or 0.6 percent. The Nasdaq composite fell 43 points, or 0.6 percent.

Beijing responded to Trump by saying it will seek retaliatory action, though it didn’t detail what its measures would entail.

Although it is unclear exactly how the furniture makers will respond to this tariff, they are surely in an unfavorable situation as a whole. Investors should keep an eye out on these stocks, along with those of other targeted companies.

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