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U.S.-China tariff tiff troubles some flooring executives

April 2/9, 2018: Volume 33, Issue 21

By Ken Ryan

 

Flooring executives are acting with trepidation amid the escalating trade dispute between the U.S. and China, which ratcheted up a few notches last week when the Trump administration threatened to impose tariffs on some $50 billion in Chinese imports across 1,300 categories of products.

The imports targeted for 25% levies range from high value-added goods, such as medicines and medical equipment, to intermediate products like machine tools and chemicals as well as durable consumer goods such as dishwashers, TVs and automobile parts. The list also includes machinery used in the production of some flooring products, including carpet and rugs, as well as milling or molding machines for products such as wood, cork, hard rubber, plastics or similar hard materials.

The day after Trump’s announcement, the Chinese Ministry of Commerce announced plans to impose a 25% tariff on $50 billion worth of U.S. exports. The 106 affected products included soybeans and chemicals and came one day after China announced tariffs on $3 billion in imports of U.S. food and other goods, 128 categories in all.

The penalties will not happen right away, if at all. The designation of targeted products will be followed by a comment period in which American companies can provide feedback to the Trump administration on the product choices. The administration will hold a public hearing on the submissions on May 15 in Washington, and companies will have until May 22 to file final objections.

The move stems from a White House investigation into China’s use of pressure, intimidation and theft to obtain American technologies.

Flooring executives argue that in a global economy, any trade war between economic powers would ultimately result in a slowdown of the world economy. Thomas Baert, president of CFL Flooring, a China-based LVT supplier, said issuing large import tariffs sounds like a great idea since theoretically it would help local production in the West but would hurt categories like LVT, which are mostly sourced in China. “In our industry, the product categories that are imported at this stage cannot be made on the domestic machines,” Baert said. “Although several manufacturers are now transforming some production lines to be able to, it is questionable whether this will truly replace China production.”

Don Finkell, CEO of American OEM, a domestic wood manufacturer, had a different take as he pointed to the U.S. trade deficit. “We’re running at an $800 billion trade deficit with the rest of the world, of which $500 billion of that is with China. Most economists say that it is unsustainable, but they don’t really agree on what the consequences are. It’s been this way for more than a decade and growing. Since more jobs are involved in making a product than in importing a product, loss of jobs seems to be the long-term consequence of a trade deficit.”

Finkell said wood flooring going to China from the U.S. has a combination of tariffs, fees and taxes in the range of 27%. If there is a tariff on wood flooring under these trade actions, he said he would expect it to be in the range of 25%. He termed it “significant but not catastrophic to the industry.”

Flooring observers say the tariffs—should they be implemented—would impact the full line distributor to a greater extent than other sectors since wholesalers have been importing LVT/WPC/SPC products in large part to promote their own private-label brands. Jeff Hamar, president of Galleher, a top 20 distributor from Santa Fe Springs, Calif., which sources from China, said he would be very surprised if flooring is ever involved in the tariffs. “There are already duties on wood flooring produced in China so, in theory, the government is already adjusting those prices to reflect market realities,” he said. “If they were to go after rigid LVT flooring the argument would be that there is so little U.S. domestic capacity, who are they harming? Clearly, any duty would be passed onto the consumer and would result in higher prices. Duties on LVT would cut the gap between wood and LVT possibly helping wood flooring sales.”

Jonathan Train, CEO of Houston-based Swiff-Train Co., which also sources extensively from Asia, is clearly not an advocate for excessive tariffs. “Small tariffs that are clearly understood and fairly implemented are fine and do not block trade,” he said. “Plus, they add a reasonable means of revenue for the government. But larger, volatile and retroactive tariffs disrupt markets unnecessarily and do not fix anything.”

Many economists see a trade war as little more than punishing the other country rather than protecting domestic producers. Some flooring executives have similar views. “Unfortunately, it’s going to be a ‘tit for tat’ kind of game that we can’t afford to play,” said Olga Robertson, president of the FCA Network. “Imagine just for one second if Walmart couldn’t fill their stores with goods—it would be Armageddon.”

manufacturing to make more stuff here in the U.S.,” said Olga Robertson, president of the FCA Network, Shorewood, Ill. “But unfortunately, it’s going to be a ‘tit for tat’ kind of game that we can’t afford to play. Imagine just for one second if Walmart couldn’t fill their stores with goods—it would be Armageddon.”

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Hurricane Harvey disrupts Houston’s flooring businesses

By Ken Ryan

Screen Shot 2017-08-30 at 1.09.27 PMHurricane Harvey’s catastrophic tear through southeast Texas turned Houston into a life-threatening flood zone with a record-breaking rainfall, shutting down most commerce, including flooring businesses. The immediate impact on the industry is palpable as Houston is home to three top 20 flooring distributors and a major 10-store retail chain.

For Houston-based wholesalers T&L Distributing, Reader’s Wholesale and Swiff-Train Co., as well as Roberts Carpet & Fine Floors, the immediate concern was accounting for the safety of their employees and family members. Jonathan Train, president and CEO of Swiff-Train, told FCNews the company’s Houston facility is threatened with more flooding, but he feels it should not be affected. “Houston remains closed; all other locations are up and running. We have a lot to do over the next several days to get back to normal working conditions.”

In the immediate aftermath of the hurricane and subsequent flooring, Train penned a letter to customers, vendors and business partners stating many of its employees lost power and suffered significant property damage, and many evacuated the area. Fortunately, he said, all workers have been accounted for and are safe. The road ahead, however, will be long.

“There is more to come and it will take days and weeks to assess the damage. Conditions are changing every hour so we all have to stay vigilant.”

At T&L Distributing, offices were understandably closed. Bob Eady, president, assessed the safety of his staff. “At this time we have only one employee that I am aware of that has been flooded,” he told FCNews. “We had an employee who made it to our facility Monday morning and sent some beautiful pictures of it being high and dry, thank God. The building just to the south of us was completely flooded at their docks.”

Reader’s Wholesale, a member of the 14-distributor Bravo Services Group, reported that all was well in their neck of the woods. But just to be cautious, the operation will remain closed for the week. Should circumstances change, Reader’s said it can rely on its Bravo members. “Bravo is a tight group,” said John Carney, executive director. “I’m sure if Reader’s does end up needing something it would have unlimited resources at their fingertips.”

John Sher, president of Adleta, in Carrollton, Texas, near Dallas, related that the sister of one of Adleta’s sales managers had to be rescued off the roof of her home by canoe. “It is very bad down there. We have offered to do anything we can to help Lucky and Adam Burke at Reader’s. Right now they are just hanging tight.”

Compounding the problem for distributors is the fact many roads are damaged or flooded, making routes treacherous or in some cases altogether impassible. At press time, several major highways—including some sections of I-10 in Texas—were under water.

The situation is equally troubling for retailers. Roberts Carpet & Fine Floors has 10 stores scattered about the Houston market. As of Aug. 29—just two days after the storm rolled in—Sam Roberts, owner, said he was still awaiting word on his businesses. “Believe it or not it’s still too early to get a good accounting on everything. Hardly anything in the city is open. I don’t know how many of our employees have flooded homes. We still haven’t gotten to a couple of our stores. Even for stores that didn’t flood there will probably be some power, phone and Internet outages.”

Roberts expects to reopen for business as soon as the staff can get to the stores. “We can work through minor damage,” he told FCNews. “It is also worth pointing out that large areas have no or intermittent power. We can’t operate if the stores don’t have electricity. We can’t get to our main office and distribution center so it is impossible to send any out installation crews at present—even if it weren’t raining.”

Massive scale
The natural disaster that was Hurricane Harvey is likely to turn into an economic disaster as well, with early estimates of the damage exceeding $30 billion. That would make Harvey one of the 10 most damaging hurricanes on record. In fact, it has already set a record for most rainfall—50-plus inches—from a tropical system in the continental U.S. According to Planalytics, which provides weather analytics for businesses, lost revenue to area restaurants and retailers alone is expected to reach $1 billion.

While those directly affected say the impact of the event will likely play out over the course of the coming months, if not years, many remain hopeful and optimistic the city will ultimately recover. Roberts, for instance, looked on the bright side, saying the situation could be much worse. “What if all 10 stores had 2 feet of water inside? Roberts Carpet & Fine Floors may yet emerge relatively unscathed. We’ll have to wait and see.”

T&L Distributing’s Eady added, “We are in uncharted territory logistically, but we will get through this and T&L will be stronger because of this.”