February 18/25, 2019: Volume 34, Issue 19
By Ken Ryan
As the United States and China continue to discuss trade, with a March 2 deadline looming, flooring executives are cautiously optimistic that a resolution can be reached before additional tariffs are imposed.
Without an agreement, however, a 10% tariff increase imposed on $200 billion of Chinese goods is due to rise to 25% on March 2. The increase would especially impact the LVT market as well as some hardwood flooring segments.
As executives play the “what if?” game, they largely remain positive that cooler heads will prevail and enough progress can be made to forestall additional tariffs. “As far as what happens, my gut is the deadline will be extended to allow for more time to work out all of the complicated politics—but who knows?” said Scott Rozmus, CEO of FlorStar Sales, a top 20 distributor based on Romeoville, Ill. “What is clearer is that whether or not this second round of tariffs goes through, prudent businesses will diversify their risk by sourcing more goods from outside of China wherever they can.”
Thomas Baert, president of CFL Flooring, a China-based LVT supplier, is among those staunchly against tariffs in general, arguing that the world economy does not benefit from a trade war. “A trade war is a lose-lose situation for all,” he told FCNews. “The first impact would be a further decline of the stock market and likely the beginning of a recession. May we hope that our political leaders are driven by mutual interest rather than electoral win and loss of face risk. At CFL, we hope that differences can be worked out in respect for each other’s position.”
While many industry executives say the current 10% tariffs are not a big deal because the costs have already been absorbed into the channel, Baert suggested a continuation of the 10% tariff keeps the industry at a standstill and delays many of the purchasing decisions on new programs.
While the White House described progress in the talks, many issues remain unresolved and the discussions will continue as both sides try to reach an agreement ahead of the March 2 deadline. “These detailed and intensive discussions led to progress between the two parties,” the White House said in a statement. “Much work remains, however.”
American officials said the talks focused on so-called “structural” reforms that the United States wants China to make and on China’s purchases of American goods and services. The White House said any agreement between the two countries will be included in a “memoranda of understanding between the two countries.”
With so much riding on the March 2 deadline—and beyond—some flooring suppliers/importers and distributors have already adapted to the business climate by looking for alternative countries for their sourcing needs.
Baert said CFL has worked diligently the last 120 days to create solutions to circumvent the threat of a possible trade war. “Our factories in Taiwan and Vietnam are up and running with the latest, most modern machinery in the industry.” He added that shipments started 30 days ago and will become a substantial part of its overall business. “All our products can be produced in tariff-free countries in case it would be necessary. At CFL, we believe that challenges are opportunities, and although they have created sleepless nights we have come out of this stronger. CFL has the ambition to double the business in the next years through more breakthrough innovations in the multi layers flooring category.”
Still, others want to avert a 25% tariff at all costs. Drew Mittelstaedt, the new president of Hallmark Floors, and former partner of Longust Distributing, said a 25% tariff would result in a major hit to the flooring industry given the large percentage of products China produces. “It would render the [products] out of many people’s budgets,” he said. “Costs would be passed along, which would slow new home construction and I’m afraid much of the discretionary remodel/replacement business would come to a screeching halt.”
Piet Dossche, CEO of USFloors, said despite significant investments in plant and equipment to manufacture multi-layer flooring products domestically, “for the vast majority they are still only made in China today and consequently have to be sourced and imported. Therefore, it makes no sense to impose tariffs on products we currently cannot successfully manufacture domestically in quantities even close to market demand.”
Scott Humphrey, as CEO of the World Floor Covering Association, recognized that his constituents have varying opinions on the tariffs. However, the general consensus is the present trade imbalance is not sustainable, he said. “There is no doubt that something needs to be done to bring parity to the current trade imbalance as well as the lack of security related to intellectual property, but tariffs have the tendency of penalizing those they are meant to help.”
Still, Humphrey said he is hopeful recent progress and positive statements from the Trump administration will lead to an agreement. “At worst, I am hopeful that continued progress will result in President Trump extending the self-imposed deadline for additional tariffs, thus encouraging momentum toward a permanent resolution.”