US tariff policy makes IKEA move its production base to Europe to cut costs

Last week, IKEA announced that the company would close down its only production unit in the United States and move its operations to Europe.

The unit would operate till December 2019, giving its employees enough time to look for other jobs. The Swedish furniture company said that its plant in Danville, Virginia would be sealed in order to cut production cost.

The plant’s site manager Bert Eades said in a statement, “This was an extremely difficult decision to receive. We made every effort to improve and maintain the competitiveness of this plant, but unfortunately, the right cost conditions are not in place to continue production in Danville, Virginia, for the long-term.”

IKEA claimed that the prices of raw materials were much higher in US as compared to Europe. It has shot up the production cost for the company making it inviable for the company to sustain itself in Virginia. Given the ongoing trade war between US and China, the US increased tariff over imports from China. The company imports many raw materials from China, especially the particle board. The company already operates plants in different countries of Europe including Poland, Russia, and Sweden. So it considered moving to Europe a better option for a smooth transition.

The furniture factory in Danville, which was started in 2008, mainly produced wooden products like shelves and different storage units.

The company did not blame Trump administration’s tariff policy and said that the particleboard used as a raw material at the Danville plant was bought from US suppliers.

A year ago, Senator Tim Kaine, a Democrat from Virginia, after his visit at the plant tweeted that workers at the IKEA plant were anxious about the government’s retaliatory tariff policy, anticipating it to increase plant’s cost of production.

Tim wrote, “Just toured IKEA’s Danville manufacturing plant. Asked if the tariffs worry them. They’re ok for now, but because they import a lot of raw materials, they’re concerned about what’s to come. We have to stop this rash policy before it hurts even more U.S. businesses and workers.”

The decision to move its base would lead to a huge amount of job cuts as its Virginia plant provided jobs to about 300 workers. With regard to the layoff, Eades said, “We will do everything we can in the coming months to support our co-workers through this change as they look for new jobs and training opportunities.”

The company had been downsizing its production and reducing its workforce since last year. Just 6 months ago the company laid off about 20% of the employees at its Danville plant and brought the production down by 25%.

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