Ethan Allen CEO Explains How Company Will Manage Tariffs; Warns More of Services Inflation

For the second time in less than two months, the CEO of a publicly traded company admitted that tariff cost burdens will not be passed down fully, if at all, to consumers. With one CEO saying tariffs were too low.

Ethan Allen CEO Farooq Kathwari told Bloomberg on Sept. 8 that domestic production protects them from the bulk of the current “Liberation Day” tariffs. And that if the Section 232 tariffs go through on furniture, they will share the cost burden with their offshore manufacturing partners rather than pass it all down to consumers.

“We will share the cost with our partners and take on some price increases. It depends on the product and the import duties. Our partners are sharing the cost now, and we will operate with lower margins, too,” Kathwari said about present tariff rates, and potential new ones.

About 75% of Ethan Allen’s furniture is made in North America. Of that, roughly half is made in the U.S., with the rest made in Mexico and Honduras. Kathwari said that when furniture companies were leaving the U.S. completely about 30 years ago, they decided to stick it out, adding that they had “good talent and good technology” and that “you have to treat good talent well.” He said automation was replacing workers or making up for worker shortages, but also added that technology made manufacturing affordable and allowed them to keep factories open.

But one of the biggest takeaways in that interview was not the rising costs caused by the America First trade agenda – it was services inflation. He highlighted two of them: the cost of housing, and medical insurance.

“When people don’t buy houses, furniture sales are sluggish,” Kathwari said, adding that their stores have around 20% to 30% less foot traffic. The company does well, he said thanks to their own strategy of having in-house interior designers that have built long term relationships with clients who keep coming back for more. This is evidence of how every business has a different strategy, and that strategy is what enables them to deal with higher import costs.

Since 2015, new home prices have risen 44.82% compared to 29% for all items minus shelter in the same period.

The other problem is medical costs. Health insurance inflation is rising above core inflation and that is not something we import. Health insurance costs have fallen since COVID-19, however, but are still one of the biggest contributors to overall inflation each month along with housing and electricity.

Kathwari said politicians never address this issue as a cost factor. It seemed to weigh more on him than tariff pricing pressure. “With a 35% reduction in headcount, we were able to reduce medical costs but medical costs for us are a disaster,” he said. “This does not happen to us in Mexico or Honduras.”

In July, Ford CEO Jim Farley told Bloomberg that despite tariffs he expects “flat pricing for the rest of the year.” Just as Ethan Allen thanks its domestic production (no need for imports) and its specialty services, Ford said its Ford Pro segment – their commercial vehicles and software division – is doing well and enables them to keep new car prices in check.

Despite tariffs, we are not seeing new car price inflation.

Farley also expressed disappointment when the Trump administration agreed to lower the Section 232 25% tariffs on all the major car exporters, bringing the rate down to 15%.

“If you look at labor and material costs and if you look at the currency that advantages their exports, it might be as much as a $10,000 discount based on cars made in Japan versus here,” Farley said.

When asked about using tariffs to reshore manufacturing, Farley told Bloomberg: “We are watching what is being reshored in automotive. But a 15% tariff is not high enough for that. It would have to be more like 30% to 40% to build a factory in the U.S.,” he said, citing strong currency and labor differentials.