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Tariff update: Postponement gives suppliers room to breathe

March 4/11, 2019: Volume 34, Issue 20

By Ken Ryan

 

President Trump’s decision to postpone the scheduled March 2 increase in tariffs from 10% to 25% was welcome news by flooring industry executives, many of whom expected a delay but were nevertheless relieved.

No new tariffs deadline has been set. However, the positive tone coming out of Washington that talks were “very productive” cleared up much of the uncertainty that executives were dealing with.

“Despite the fact this outcome was highly expected, I was still very happy and relieved to hear no additional tariff increases would be imposed on March 2,” said Piet Dossche, CEO of USFloors and executive vice president of hard surfaces for Shaw Industries. “I am fundamentally against tariffs as they are a hidden consumer tax and, therefore, a risk of destabilizing and slowing down consumer demand. I am in full agreement with our President and administration: trade agreements with our global trading partners need to be reviewed from time to time. Countries over decades can change dramatically in their economic development and can turn from underdeveloped status into a highly developed economy no longer in need of the same stimulus and preferential trade status as when the original agreements were implemented. Tariffs are not the solution—negotiations and a willingness to compromise from all participants when needed will bring resolution.”

While the resilient flooring category drew much of the attention during the tariff tiff between the two countries, hardwood flooring was also impacted. To that end, Michael Martin, president and CEO of the National Wood Flooring Association (NWFA), said no matter which side of the debate people were on, “all agree the uncertainty created an unnecessary burden on the entire industry, making it extremely difficult to plan effectively for both their immediate needs as well as their long-term goals.”

Martin said many hardwood suppliers—unclear about how the tariffs might impact their businesses—reduced production due to decreased orders as purchasers waited to see exactly how the tariffs would be implemented, and how the Chinese government would respond. “NWFA has always advocated for a level playing field for wood flooring suppliers, no matter where the product originates,” Martin said. “These negotiations will have a tremendous impact on accomplishing that goal.”

Not every executive was holding his or her breath waiting for a deal or decision to be struck. Jeff Hamar, president of Santa Fe Springs, Calif.-based Galleher LLC., a top five flooring distributor, said he never expected the increased duties to 25% to go into effect. On the other hand, he is happy it didn’t take place. “The disruption that would have caused to the economy and stock market would have been very negative, and it’s clear Trump doesn’t want any pullback in either of those two areas. The two countries need to wrap up and get a deal that all sides think is fair and right. The Chinese clearly need to make bigger moves on IP and technology, but we will have to give a bit as well.”

Hamar said the “real question” is what happens to the 10% that is currently in effect, “as this has big implications in several short- and long-term areas.”

In his role as CEO of the Decorative Hardwoods Association, formerly known as Hardwood Plywood and Veneer Association, Kip Howlett represents the hardwood plywood, hardwood veneer and engineered hardwood flooring industries. His take is that over the last several decades China has taken advantage of the U.S. in trade, “and the president is trying for the first time to level the playing field. This delay signals progress is being made but we’ll have to wait and see.”

Don Maier, CEO, Armstrong Flooring, said the delay in implementing a potential tariff increase will allow for continued negotiation without an immediate impact to costs and pricing across the industry. Even before tariffs became a headliner, Maier said Armstrong had made substantial investments to expand its capacity in the U.S., including developing LVT production lines at plants in Pennsylvania, Illinois and Oklahoma.

Specifically to U.S.-China trade, USFloors’ Dossche said he wants the U.S. administration “to play hardball” in these negotiations with China and truly achieve some major reforms, not only in tariffs but also in the way IP is respected and businesses can invest in China freely.

“Healthy trade between partners must be a win-win situation for it to thrive and last,” he said. “During the last several decades we have seen our position deteriorate. It is time to take a firm stance and bring back equilibrium. Not through tariffs but with dialogue and negotiations where all parties can walk away from the table knowing they have been treated fairly.”