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Flooring industry braces for tariffs on vinyl

By Ken Ryan

 

The vast majority of flooring industry executives say they are against the proposed 10% tariffs on Chinese imports—which includes vinyl flooring—saying the likely price hikes will hurt the industry, lead to fewer and less innovative choices for the American consumer and, ultimately, result in American job losses.

President Donald Trump’s proposed tariffs on $200 billion worth of Chinese goods includesLVT and multilayer flooring products such as WPC has prompted a group of vinyl flooring suppliers—namely Shaw, Novalis, CFL and Metroflor—as well as the American Chemistry Council and the Vinyl Institute, to form a coalition against its implementation.

Harlan Stone, group CEO for Metroflor/Halstead, told FCNews the tariff on LVT/multilayer flooring products will likely trigger increased costs to end users, something he essentially calls an “unfair tax” on the American consumer. “This has the possibility of also hurting various businesses involved in the sale, installation and distribution of LVT/multilayer flooring products in the homes and places of work throughout our country.The impact on Asia is unknown to us, but it will not be positive.”

The stated mission of the coalition, according to Stone, is to stand up for the American consumer and worker to ensure there is not a disproportionately negative impact on them. “We need to inform the hard-working people in federal government what possible impacts could be caused by the imposition of such tariffs. With this knowledge, we hope they will make an informed and wise decision and remove vinyl flooring products under HTS #5918.10.10 from any list of items that will incur any additional tariffs.”

Thomas Baert, president of Shanghai-based CFL Flooring, has been doing business in China for more than 20 years. His believes the tariff will not have a major impact on the flooring industry because the cost will partly be absorbed by saving on currency exchange, price increases to end users and perhaps some margin savings in the supply chain.

“The reality is there is a fast change in demand from regular LVT to multilayer flooring, and the USA is not able to supply this,” Baert stated. “The China factor is there to stay—this is where the fast innovations are coming from and for some Westerners this is hard to admit. Any trade barrier will motivate the Asians to innovate even more quickly.The bigger concern is that a general trade war could have impact on the stock market, business confidence and consumer spending. We sometimes forget that economics is all about psychology, reflected in trust in the future.”

Shaw Industries, another member of the coalition, is on record opposing tariffs. The company believes tariffs will result in higher prices—and fewer choices—for the consumer. “We will continue opposing tariffs that do not take into account dynamic market changes, innovation and consumer preferences,” said Tim Baucom, executive vice president - residential division. “We remain committed to providing a broad product portfolio—both internationally sourced and domestically manufactured—and have invested more than $1 billion in our existing and new U.S. facilities over the last five years to deliver upon this commitment.”

While tariffs may help some domestically focused companies through higher employment, some industry leaders contend there will be far more negative consequences borne by the various manufacturers, importers, distributors and retailers that rely on imported product. “What tends to get seen and celebrated are the gains by the few, while the more diffuse and spread out losses tend to be unseen,” Torrey Jaeckle, vice president of Jaeckle Distributors, Madison, Wis., told FCNews. “President Bush’s tariffs on steel were shown to have resulted in more American job losses due to higher steel prices than the total number of people employed by the steel industry itself.”

Scott Rozmus, president and CEO of FlorStar Sales, Romeoville, Ill., is another distribution executive who cites historical precedent in worrying that escalating trade wars have proven futile in the past. “First, there should be fair trade globally. Second, history has proven that attempts to fix artificially the working of the U.S. free market economy generally do not end well for our economy. Ultimately, severe protectionism results in inflation followed by severe recession or even an economic depression. You do not need to take my word for it—simply review history, particularly that of the late 19th and early 20thcentury.”

Some executives believe tariffson LVT-related products may accelerate the movement toward U.S.-based manufacturing, at least in the long term. In addition, tariffs on LVT may benefit hardwood flooring as the price gap between LVT-type products and hardwood flooring make hardwood flooring more price competitive.

“It increases the chance that a price-sensitive customer goes with the real thing (hardwood), rather than a look-alike product,” Jaeckle said. “But it’s wrong to make an assessment from such a narrow point of view. You have to look at the big picture and evaluate the effects of any tariffs at a global level. Higher prices simply mean consumers have less money to spend on other goods and services. Maybe they were going to renovate a kitchen and living room, and now they only do the kitchen. Or maybe they downgrade and go with an inferior and less profitable commodity product. None of that is good for the industry.”

Most flooring executives agree that while it’s conceivable that foreign companies—at least to a certain extent—absorb some of the tariffs, for the most part they will be paid by consumers. Coca-Cola, for example, recently announced a rare increase, citing aluminum tariffs as a main cause. Sam Adams brewer Boston Beer said in an earnings call last week that it would raise prices by up to 2% in the second half of the year due to the tariffs.

Tariffs—and, in some cases, falling sales in China as a result— are hitting impacting Detroit automakers as well. General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV each adjusted full-year outlooks for 2018 in late July as they revealed lower-than-expected second-quarter earnings—all of which were impacted by rising costs of steel and aluminum. (Tariffs on steel and aluminum were announced in March 2018.)

According to the Tax Foundation, regarded as the nation’s leading independent tax policy nonprofit, if all tariffs announced by both the U.S. and foreign jurisdictions thus far were fully enacted, U.S. GDP would fall by 0.47% ($117.66 billion) in the long run, effectively offsetting one-quarter of the long-run impact of the Tax Cuts and Jobs Act. Wages would fall by 0.33% and employment would fall by 364,786.

If additional tariffs and in-kind retaliatory actions continue to be taken, the harm caused to U.S. businesses and consumers would increase, according to the Tax Foundation.