Strategic Exchange: Chinese Tariffs, HGTV's carpet stance and patent lawsuits - Jun 19

By Kemp Harr

The clock is ticking on the U.S.–China trade negotiations, now that the tariffs on $200 billion worth of Chinese consumer goods, which includes floorcovering, have been increased to 25%.

Those that follow this closely know that the actual impact of this action, a 15% increase in the cost of the goods, won’t go into effect until mid-June. The official Federal Register Notice clearly states that goods exported from China on or after May 10th would be affected by the increased tariff. The tax isn’t levied until the goods enter the country, and with the average transit by sea from China to the U.S. being 30 days, virtually all product that a retailer sees in the month of June won’t be impacted by the increased tariff. I mention this because there is still time, even if you are reading this the first week of June, for the negotiations to change what happens to the product while it’s still on the water.

There is no denying that a prolonged tariff on Chinese-produced goods will have a negative impact on the growth of the U.S. economy. On the Thursday before Memorial Day, the Federal Reserve Bank of New York warned that tariffs imposed on Chinese imports were costing the average household $831 a year. The uncertainty of whether these tariff increases will stick has been a key factor in the 4% drop of the Dow Jones Industrial Average in the month of May.

I’ve mentioned before in this column that the one thing we know for sure is that the single driving motivator for every politician is to get re-elected. President Trump knows that he is far less likely to serve another four-year term if the economy tanks in the next 12 months. But it’s also true that negotiations involve two sides, and China’s president Xi Jinping surely understands that he holds a few cards that could impact the outcome of the next U.S. presidential election. The first couple of weeks of June will be pivotal. Let’s not forget that roughly 25% of all floorcovering sold in the U.S. comes from China.

Most everybody knows that it’s the American consumer that ultimately pays for the tariffs. Technically, the importer pays the tax and then passes the increased cost on to the consumer by raising the cost of the goods. But what happens next is what’s interesting. As prices rise, everybody jumps in, regardless of country of origin, and inflation kicks in for the whole category. As an independent dealer that buys, say, $3 million worth of flooring a year, you might not think that you have a voice in this game, but you do. Work with the suppliers that care enough about your business to only raise prices when their warehouses have been depleted of the goods they imported prior to the elevated tariff or from non-Chinese suppliers.

HGTV’S NEGATIVE STANCE ON CARPET
Are you surprised to read that HGTV is the fourth most popular cable TV channel, with over 700,000 daily viewers? So, when it comes to consumer awareness of floorcovering products, there should be no doubt which TV channel has the most influence on consumers’ perceptions. If you dive even deeper, you discover that a homeowner who is considering a remodel project or is in the middle of one is more apt to tune in for ideas. Another huge segment of HGTV’s audience are Millennials who are considering buying a home.

So why is the Carpet and Rug Institute, the trade association that represents the largest single segment within the flooring business, sitting idly by as many of the popular HGTV shows are recommending that consumers tear out that “dirty old carpet”? I’m one of those who still believes that carpet enhances the livability of certain rooms within the home. But whose responsibility is it to tell the consumer that?

INCREASING DEBATE ABOUT FLOORING PATENTS
There are three companies in the flooring business that focus on managing a vast number of patents, representing much of the innovation that differentiates one type of flooring from another. These three companies are I4F, Unilin and Välinge. Two are standalone companies, while Unilin is a division of Mohawk. If you are a fan of FloorDaily, you’ll have noticed that the lawsuits and chest pounding between these firms is starting to pick up. I’m not going to weigh in on the current patents that are being challenged, and I’d like to point out that our role as journalists is to make sure that both sides of an issue are vetted-and it can take years for some of these debates to be resolved. Stay tuned.

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.

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