The word “tariff” has been a hot topic across the world since President Trump took office in January. But now with the most recent announcement about what countries will be affected through this trade war, it’s time to unpack what tariffs are and how the hospitality industry will be affected.
What is a tariff?
A tariff is a tax surcharge when goods are imported into another country. The amount of a tariff is dependent on which country a good is imported from. However, the U.S has promised to impose at least a 10% tariff on goods from any country and in some cases, (such as with China) a lot more.
Tariffs are only due when a good reaches the final destination and should not be charged and collected ahead of time. The tariff amount is based on what the manufacturer is paying their factory/ supplier and not the final cost of goods including markup.
Effects on the Hospitality Industry
The hospitality industry, much like many others, is deeply dependent on manufactured goods sourced from countries such as China, Vietnam, and India. While businesses may partner with American-based companies, the reality is that many core products—such as carpets, lighting fixtures, linens, electronics, and even construction materials—are often imported, primarily from China, followed by India and Vietnam. Even when products are labeled as “domestically made,” they frequently include imported components. Electronics are a major import category, but even everyday materials like plastics and seating foam are commonly sourced overseas. Casegoods and seating tend to be more readily available from domestic manufacturers, whereas products like lighting, mirrors, carpets, and fabrics are harder to source within the U.S. due to stricter environmental regulations and the concentration of specialized manufacturing expertise abroad.
For hotels in the process of building or renovating their establishments, these rising costs can take a deleterious effect. From conversations we’ve had with procurement experts, Chantz Wesnidge and Vanessa Waldner of The Ness Group, we’ve heard that some hotel owners are putting a pause on projects until the market stabilizes or many are trying to determine alternative options other than getting goods from China.
Vietnam, Malaysia, and some parts of Europe are seen as key countries that produce most of the same goods as China does. However, while you may be reducing your tariff spend from buying from outside of China, the labor costs outside of China will likely be higher, causing an overall price increase.
Effects on Hotel Experiences
It is unclear and much too early to tell how hotel guest prices will be affected. Hotels who delay projects will have to accept they won’t be able to have an updated interior design on their guest rooms. However, hotels who don’t delay may have to pass some or all of the costs on to the guest. The biggest price differences will likely be experienced by those paying for average or standard rate hotels and not budget brands or luxury hotels.
Guests will have to determine what they are willing to pay, amidst a number of other rising costs expected in the next several months.
How to Prepare Yourself
If you are a hotel owner, the best thing you can do is educate yourself and partner with a trustworthy and reliable purchasing agent. China is the most risky to get goods from right now, as their expected tariff rate is expected to come down however will likely remain higher than other Asia based manufacturing options. The EU is likely to not negotiate rates and accept the blanket tariff of 10%. The big issue is going to be capacity. If goods are no longer imported from China, this may create supply chain bottlenecks with production rates and shipping. In addition to lower labor costs, another advantage that China has is increased square footage and automation capacity to produce a greater quantity of goods at the same time.
While many hotel owners can find goods produced in the U.S., domestic labor charges and capacity limitations are likely to drive up costs and slow down arrival.
A good measure would also be to receive as many goods as possible before the tariffs. Next, owners have to be diligent in looking over their invoices and making sure they are not incorrectly charged. Finally, they should check to make sure that goods and services are clearly separated on invoices.
Wait and See
No one knows what will happen in July when the tariff pause is slated to end. However, rather than worrying, owners can stay the course, mitigate their risk and maintain craftsmanship by diversifying their supplier portfolio to extend beyond China. Realistically, no one can avoid goods from China completely but you take action to be more agile and resilient. This includes partnering with a procurement expert, like The Ness Group, who knows their stuff.