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Tariff truce with China puts further hikes on hold

December 10/17, 2018: Volume 34, Issue 14

By Ken Ryan

 

Flooring executives are breathing a sigh of relief after the U.S. and China agreed to a 90-day tariff cease-fire on imported products, including flooring. However, questions and concerns remain about the future relations between the world’s two largest economies.

A tariff hike on $200 billion worth of Chinese goods was slated to go into effect on Jan. 1. However, following a meeting at the G-20 Summit in Argentina earlier this month, President Trump and Chinese president, Xi Jinping, agreed to postpone the decision for at least three months. The tariffs already imposed remain and new ones could still be imposed as Washington and Beijing take a timeout to talk.

For now, most flooring executives are viewing the move as a welcome sign. “Clearly this is good news,” Drew Mittelstaedt, partner at Phoenix-based Longust Distributing told FCNews. “Hopefully calmer heads will prevail. I don’t see the original 10% ever going away, but for now this is good news.”

Adam Joss, co-owner of The Vertical Connection Carpet One in Columbia, Md., said he is optimistic there will be a resolution eventually. “It’s important for us, our industry and our customers to have certainty. It’s very difficult to operate in an uncertain world. For now, I’m thankful there wasn’t an escalation.”

If nothing changes, the flooring industry can easily live with 10% tariffs, observers said. Some companies absorbed the previous increase while others passed it on to their customers. A few added a creative wrinkle to their strategies. “When the first 10% tariff was instigated, we simply implemented it as a separate line item charge on our invoices,” Mittelstaedt explained. “As they adjust up or down, we’ll simply manage that percentage.”

At Elk Grove Village, Ill.-based All Tile, the top 20 distributor studied alternative manufacturers and brought in its Chinese New Year’s inventory early, according to Bob Weiss, CEO.

CFL Flooring, one of the largest Chinese flooring exporters, has initiated the production of three new fully integrated production facilities outside of China. “New factories are up and running, and one additional factory will be operational in the next weeks,” said Thomas Baert, founder and CEO.

Don Maier, CEO of Armstrong Flooring, said the 10% tariff instituted in September had dual implications. “It made certain products that we import from China more expensive, but it also further strengthened the value proposition for many of Armstrong Flooring’s legacy resilient products. As imported flooring becomes more expensive, domestically manufactured products such as vinyl sheet, LVT and VCT become even better values.”

While some observers see the U.S.-China ceasefire as creating an off-ramp for de-escalation of the trade war, many flooring executives are wary about the future beyond the 90-day period.

All Tile’s Weiss said he is concerned about the additional 15%, and still feels it will be imposed at the end of March. “I hope I am wrong, but the issues that the tariffs are being imposed—such as intellectual property—are far from being dealt with,” he told FCNews. “Flooring and the other tariffed products are being used as the tool for these negotiations.”

Scott Humphrey, CEO of the World Floor Covering Association, said, as someone who has studied President Trump’s style of negotiation from his book, “The Art of The Deal,” he was always hopeful this was a tactic Trump was using to get a better deal for America. “I am hopeful the 15% additional will not be added on and we will see a roll back of the original 10%. That said, there is no doubt in my mind this is only over if the president achieves his desired result.”

A high-level executive with Glen Burnie, Md.-based Haines, the industry’s largest distributor, said the company will focus on ensuring it has strong supplier relationships during this period of détente. “A 15% additional tariff would be something we would prefer not to deal with. However, as the two countries work through the negotiation over the coming weeks, we will continue to prepare for outcomes that would include the proposed or slightly less percentage increase.”