Strategic Exchange: The 25% tariff on China-produced LVT has been reinstated - Aug/Sept 2020

By Kemp Harr

Back in November 2019, when the tariff exclusion for China-produced “click” LVT was granted, we were told that the exemption was valid until August 7, 2020, and on that date, it would either expire or be extended. Right before press time for this issue, we learned the exemption has expired for flooring products, and the 25% tariff has been reinstated, effective immediately.

For the past six weeks, industry leaders have been debating whether or not the United States Trade Representative (USTR) would extend the tariff exclusion, and now we know. As a result of this news, the wholesale pricing for all vinyl flooring that had been exempted will likely rise 10% to 15%.

Folks close to the guidelines for these Section 301 tariffs knew that exclusions would only be granted for a couple of reasons. Those filing applications had to prove:

“Whether the particular product is available only from China. In addressing this factor, requesters should address specifically whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.” or

“Whether the imposition of additional duties on the particular product would cause severe economic harm to the requester or other U.S. interests.” (USTR Guidelines)

When the exclusion was granted last November, it was Cali Bamboo that was cited as the applicant, and now, with hindsight, we have to assume it was for the latter reason. We know, for example, that several major companies like Home Depot and Shaw Industries also filed for exclusions for the same class of products, but their applications were not mentioned when the exclusion was allowed. These larger companies have such a diverse product offering that one can assume the USTR didn’t think the tariff would “cause severe economic harm” to these bigger firms. We know, for example, that floorcovering only represents about 6% of Home Depot’s total revenue, so LVT, although the fastest growing category, would be substantially less of a factor.

Nearly everyone in the industry agrees that, as of today, there is not enough capacity for rigid LVT outside of China to satisfy the U.S. demand for it. And now that we’ve learned the tariffs are back on, we must assume that the USTR feels there is at least enough supply of “comparable product” to meet the demands of the American consumer.

This deductive reasoning could perhaps be giving our federal government too much credit. Much has happened in the world since last November when the exclusion was granted. A few of the industry pundits that I’ve talked to feel there could be much more to this decision than meets the eye. There is no denying that this is an election year, and relationships with China have been deteriorating for multiple reasons. Oddly however, there were 250 items on a list published on August 6 that were granted an extended exclusion. And no one has explained why LVT wasn’t on the list.

Moving forward, it’s safe to assume that the American consumer is going to be paying about a buck (per square foot) more for LVT at retail. Naturally, this narrows the pricing gap between LVT and hardwood and ceramic and also makes carpet sound like a much more affordable choice. Time will tell, and it will be interesting to see if the price escalation puts a dent in the growth of LVT or changes the value equation for the products that have been losing share at the expense of LVT.

There is no denying this tariff will accelerate the shift away from Chinese-made LVT flooring. We highlighted, in this column last month, the vast number of Chinese producers that have announced plans to build manufacturing facilities in Northwest Georgia. Some of those plans are being delayed, however, because the coronavirus is curtailing the free flow of travel required to transfer the manufacturing expertise to the new U.S. operations.

RETAILERS WHO ADAPT WILL SURPASS THOSE THAT DON’T
I read the other day where the three most unlucky numbers were 13, 666 and 2020. We are clearly in a crisis situation thanks to this coronavirus, and change is inevitable. Fortunes will shift to those who can adapt and skate to where the puck is headed. The American consumer is relegated, in the interest of their own safety, to shopping online. Editor Meg Scarbrough covers this topic well in The Changing Consumer, which starts on page 69, and Doug Chadderdon, the CEO of 20 Great Floors stores in the Pacific Northwest, and I discussed this topic in a recent FloorDaily podcast.

The good news is that flooring sales are strong because the home is the new family oasis, and dollars that were spent in other areas are now being spent on upgrading the home. But the buying process has changed, and if you haven’t upgraded your web portal, you’re going to be passed by those that have. Get some help fast. Tell people who you are; set them at ease by letting them know that you are there to help; don’t lie to them with bogus promotions like buy-one-room-get-the-second-room-free; and don’t let some supplier talk you into an ad box that flies in and interrupts the shopping process.

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

Copyright 2020 Floor Focus

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