Correction: Tariff truce—U.S. calls off new hikes; industry in holding pattern

Home Inside FCNews Correction: Tariff truce—U.S. calls off new hikes; industry in holding pattern

Editor’s note: The following story has been updated to reflect erroneous information that was reported in its original form in the July 8/15, 2019, issue of FCNews. The original story inaccurately stated that the 25% tariff on goods from China that included flooring materials had been rescinded by the U.S. government. The latest round of tariffs that was put on hold did not include flooring products, but rather consumer products such as iPhones and televisions. The original 25% tariff on flooring materials from China remains in effect. FCNews regrets the error and any confusion caused by the original article. 

 

July 8/15, 2019: Volume 35, Issue 2

By Ken Ryan

Flooring executives managed to curb their enthusiasm on the news of a truce in the ongoing U.S.-China trade battle, saying that much remains unresolved. Furthermore, few believe a mutually beneficial trade deal can be reached in the near future.

President Trump had threatened an additional 25% tariff on $325 billion worth of goods from China, mostly consumer products such as iPhones and televisions. For now, that tariff has not been applied. However, all applicable flooring products that shipped from China after May 10, 2019, are now subject to the full 25% tariff.

The on-again/off-again nature of this trade spat is sowing seeds of discontent and frustration among many top-level flooring executives.

“The tariff truce simply extends the uncertainty that our industry has been dealing with for many months,” said Michael Martin, president and CEO of the National Wood Flooring Association (NWFA). “It does nothing to help resolve the current business environment, nor does it provide any sense of stability required to develop a long-term business plan.”

Scott Humphrey, CEO of the World Floor Covering Association (WFCA), believes this “indecision may be our worst enemy” with regard to the current tariff situation. He elaborated on the statement, adding, “Manufacturers are determining how much to raise prices. U.S. sellers who utilize OEMs in China are determining how much of the hit they will take. All the while, the only thing that is certain is that nothing is certain. The floor covering industry needs to make decisions today based on what the future holds. This is virtually impossible without the knowledge of how pricing will be impacted by tariffs and the geopolitical tug of war between the U.S. and China.”

Other flooring executives agree that many issues remain unresolved. Some of that uncertainty depends on your industry sector. While acknowledging that it is a positive that trade negotiations are back on with China, Kip Howlett, president of the Decorative Hardwoods Association, said “the jury’s out” if a deal can be struck. “Because the engineered flooring and hardwood plywood products have antidumping/countervailing orders in place against China, they are outside these trade negotiations,” he explained.

Howlett added that U.S. hardwood logs “continue moving into China in massive amounts, and U.S. hardwood veneers still face non-tariff trade barriers keeping them out. With the rampant Chinese circumvention, on the whole we’re still the losers here—except logs.”

Even more so than hardwood lumber and flooring, the LVT category—especially rigid vinyl products—is in the crosshairs of any tariff increase given that a high percentage of rigid vinyl is produced in China. As Thomas Baert, president of Shanghai-based CFL Flooring, explained, “One can argue the merits of tariffs, but the bottom line is tariffs are an unnecessary added cost for our industry. Most major Chinese suppliers caught in all of this have worked very closely with their customers through efficiencies and cost reductions to offset a major portion of the 25% tariff as much as possible. This has minimized the net increases passed
along to retailers vs. absorbing full tariff costs.”

In advance of the 25% tariff that President Trump had imposed on China, CFL proactively moved portions of its manufacturing to Taiwan and Vietnam. Other companies are making similar arrangements.

Jeff Hamar, president of Santa Fe Springs, Calif.-based Galleher, a top-five flooring distributor with extensive business dealings in China, said he believes both sides want to do a deal. However, he is uncertain one can be achieved easily. “The Chinese side has to give up a lot, and I believe there is enormous internal pressure to stand up to the West and not let the U.S. change the way they do business. The downside for them is if they don’t give as much as Trump needs, the giant sucking sound of companies leaving to other sources of supply will only get louder. The U.S. continues to be in a strong position.”

The WFCA’s Humphrey said now is the perfect time for a deal to be forged in light of the fact China’s economy is slowing and their growing middle class covets U.S.-made products.

 

Look for an update on this subject in the Aug. 5/12, 2019 issue of FCNews.

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