Call them a symptom of long-festering global trade tensions. Call them a reflection of major fault lines existing within key kitchen/bath product sectors. Call them conflicts colored primarily by political leanings, divergent viewpoints and competing business interests.
All those narratives to some degree are likely true.
But whatever they’re called, the divisive, months-long battles raging over the trading practices of Chinese and other overseas suppliers are clearly roiling the kitchen and bath industry, their eventual outcome threatening to have a palpable impact on prices of both imported and domestically produced products, as well as on the businesses of manufacturers, distributors, importers and specifiers – including design firms, remodelers, builders, fabricators and others in the product-supply chain. Likely to be impacted, too, are consumers of myriad kitchen and bath products, including cabinets and vanities; quartz surfaces; ceramic, porcelain and mosaic tile; hardwood plywood, and wooden components used in cabinet manufacturing.
The high-stakes battles in question – currently being waged in the halls of the U.S. Commerce Dept. and the U.S. International Trade Commission (ITC) – involve the potential imposition of punitive trade duties on imports allegedly being subsidized by foreign governments and sold, or “dumped,” in the U.S. at less-than-fair market prices, materially damaging the businesses of domestic suppliers.
Both advocates and critics of potential special tariffs – known as “antidumping” and “countervailing” duties – have testified before U.S. trade officials, lobbied for Congressional support, launched petition drives and embarked on expansive public-relations campaigns. Vociferous, sharply differing opinions have been aired. No less than five coalitions have been formed in the past year to represent various interests. A series of separate, parallel governmental investigations, underway since early 2019, are expected to come to a head as early as this month (see related stories, Pages 32, 34 and 36).
Decisions in those cases will either be roundly applauded or harshly condemned. Advocates will hail protective duties as a means for leveling the competitive playing field for U.S. suppliers, while saving American jobs. Critics will denounce the levies as unfairly punitive to foreign suppliers addressing a market niche unserved by domestic firms.
But regardless of how any duties may be viewed, there’s little doubt that, if imposed, their impact would be significant. If trade penalties are imposed, for instance, U.S. importers ostensibly would have little choice but to negotiate new agreements with foreign suppliers, absorb the price hikes or pass the increases along to channel partners and, ultimately, to consumers. Available product sources could be narrowed. Domestic manufacturers, facing diminished foreign competition, could raise prices. Consumer spending could be affected. Companies could suffer revenue losses, or even close their doors entirely. And all of this is independent of the issue of current and future U.S. trade policy, already said to be resulting in price inflation for manufacturers, product-sourcing dilemmas for specifiers, project delays for remodeling firms and a pervasive sense of uncertainty across an industry otherwise poised for growth in 2020.
Cabinets & Vanities
Most prominent, and divisive, of the import wars raging in the kitchen and bath industry is the dispute involving Chinese imports of solid- and engineered-wood cabinets and vanities, and their components.
Reactions by both sides in the landmark case have been both vocal and charged, particularly in the wake of last October’s affirmative preliminary determination by the Commerce Dept., which found that Chinese exporters of wooden cabinets and vanities – both assembled and ready-to-assemble (RTA) – have dumped products in the U.S. at margins ranging from 4.49% to 262.18%. The ITC had previously determined there’s “a reasonable indication” that the U.S. cabinet industry is being “materially injured” by imports of Chinese cabinets and vanities sold in the U.S. at less-than-fair market value. As a result of those decisions, U.S. Customs and Border Protection agents were instructed to collect cash deposits from Chinese cabinet importers based on preliminary duty rates established by Commerce. Those duties are in addition to countervailing duties imposed last August.
Applauding the government actions is the American Kitchen Cabinet Alliance (AKCA), a coalition of U.S. cabinet suppliers closely aligned with the Kitchen Cabinet Manufacturers Association. Opposing the rulings is the American Coalition of Cabinet Distributors (ACCD), an alliance of companies that import, distribute and install ready-to-assemble (RTA) cabinets. The two sides have engaged in an escalating war of words that mirrors not just solely opposing views, but a seemingly deep-seated antipathy.
‘Level playing field’ sought
The 50-member AKCA, formed expressly to combat Chinese trade practices in cabinet manufacturing and exporting, last March filed an unfair-trade petition with U.S. trade officials, seeking the imposition of stiff antidumping and countervailing duties on allegedly unfairly traded Chinese imports of wooden cabinets and vanities that, the AKCA says, are seriously undermining the businesses of domestic cabinet suppliers.
According to the AKCA, China, for years, has manipulated global production while capturing a large and growing portion of the U.S. cabinet market by manufacturing and exporting dumped and subsidized products. Chinese kitchen cabinet and vanity imports, valued at an estimated $4.4 billion in 2018, have increased by more than 75% since 2015 and currently comprise some 40% of a $9.6-billion domestic cabinet market, according to the AKCA, which contends that the Chinese imports are undercutting U.S. pricing – with finished cabinet import prices in most cases 20%-60% lower than U.S. prices, and less than the cost of raw materials for U.S. suppliers.
Government-subsidized Chinese imports, the AKCA has charged, have resulted in diminished U.S. sales, plant closures, job losses, wage reductions, corporate consolidations and other forms of injury in an industry that creates more than 250,000 direct and indirect American jobs. If left unchecked, the imports will ultimately decimate the U.S. cabinet industry, coalition officials argue.
“The U.S. cabinet and vanity industry and its workers have suffered for years due to dumped and subsidized imports from China,” says Timothy Brightbill, of Wiley Rein LLP, the Washington, DC-based law firm serving as counsel for the AKCA. “All we’re asking is for the U.S. government to apply trade-remedy laws to dumped and subsidized Chinese products [and] to address China’s illegal and distortive trade practices.”
“Illegally subsidized Chinese imports of kitchen cabinets and bath vanities into the U.S. have injured the important, multi-billion-dollar American cabinet industry,” observes Mark Trexler, president and CEO of AKCA member Master WoodCraft. “With a level playing field, American kitchen cabinet manufacturers can compete with any company, or country in the world. What we cannot compete with is China’s cheating.”
According to Stephen Wellborn, of Wellborn Cabinet, a member of the AKCA’s steering committee, “America has been taking it on the chin from the Chinese for quite some time.
“The U.S. cabinet industry, like the domestic furniture industry, will go completely by the wayside if these unfair-trade practices continue,” Wellborn says. “The AKCA is simply asking for enforcement of U.S. and international trade laws so that American kitchen cabinet manufacturers can compete on a level playing field.”
“American kitchen cabinet workers can compete with anyone in the world,” adds AKCA CEO Edwin Underwood. “All we’re asking is for the U.S. government to address China’s illegal and distortive trade practices. We must be certain our kitchen cabinet industry is on a level playing field with its global competitors. China’s unfair-trade practices must be stopped.”
But the AKCA’s position has drawn sharp criticism, and strident opposition, from the ACCD, whose members have pushed back hard on what the RTA-cabinet coalition calls a “cynical” campaign by domestic manufacturers to capitalize on anti-China trade tensions, induce the government to impose duties against Chinese RTA imports and effectively “wipe out” the RTA option from the U.S. market.
Domestic cabinet suppliers, ACCD officials charge, are conveying a “false narrative” rife with “opportunistic claims…about an RTA segment that actually complements U.S. production and enhances the overall cabinet market.”
“This case represents a stunning example of companies taking advantage of the trade hysteria against China, hiding behind the American flag and claiming to be standing up for American jobs,” says ACCD member Randy Goldstein, of Raleigh, NC-based Kitchen Cabinet Distributors. “The [AKCA] petition is simply an attempt to eradicate a small but important market segment traditionally supplied by China, to favor petitioners’ foreign suppliers in other countries and force consumers into a narrower set of product options and longer wait times.”
While there are legitimate grievances concerning U.S.-China trade relations, “current trade tensions are giving ammunition to entrenched business interests looking to weaponize our government to wipe out legitimate U.S. businesses,” observes Robert Hunter of CNC Cabinetry, a South Plainfield, NJ-based RTA cabinet distributor.
“If the petitioners succeed, import duties may all but eliminate RTA cabinets from the U.S. market, threatening the future of thousands of businesses and jeopardizing the jobs of the tens of thousands who are directly employed by these companies or indirectly supported by the RTA industry’s supply chain,” Hunter says.
According to the ACCD, the unfair-trade case was initiated “despite the fact that RTA product accounts for less than 10% of the healthy and still-growing U.S. cabinet market,” and RTA imports are “already saddled” with 25% duties due to the ongoing U.S. trade war with China, making additional duties “nothing more than punitive.”
RTA cabinet suppliers, proponents further argue, serve a wholly different market niche than domestic suppliers, operate to a different business model, pose no competitive threat and “risk becoming collateral damage to the larger trade war…with no tangible upside for the American people.”
While most people think of China as supplying strictly low-priced product, the ACCD also contends that Chinese imports have not had the negative impact on cabinet industry prices that the AKCA claims. ACCD members also defended the quality of the imports.
“Imports often sell at higher prices than domestically produced cabinets, without regard to whether the products are assembled, nor is there evidence that Chinese imports depressed or suppressed U.S. prices,” the ACCD claims, adding that domestic cabinet prices actually increased from 2016-2018 (the period under investigation) while import prices declined – the opposite of what the AKCA has claimed.
The ACCD also charges that many of the cabinet suppliers behind the unfair-trade case have relied for years on imported Chinese cabinets and components, and are currently shifting production to countries like Vietnam, Thailand and Mexico. Those companies, the ACCD charges, won’t bring back U.S. jobs if import duties are imposed, but instead will continue to rely on product sourced from overseas, just from countries other than China.
In that respect, domestic suppliers, the ACCD charges, “are gaming the system, wrapping themselves in the American flag and seeking to monetize anti-China trade fever to their benefit.
“If duties are placed on RTA cabinets, jobs in the made-to-order sector will neither be saved nor created,” the ACCD maintains. “Instead, thousands of American workers will lose their jobs and American consumers will have fewer product choices.”
That argument, the AKCA claims, is nothing more than “smoke and mirrors” from the ACCD, which, the AKCA charges, not only sources products from China but represents “a front” that enables U.S. companies to do business with Chinese interests engaged in unfair-trade, “some of which are owned or directly controlled by the Chinese government.” AKCA companies, in contrast, are based in the U.S., make the majority of their products in the U.S. and provide well-paying jobs across the country,” the AKCA says.
“The AKCA is committed to fighting for more than 250,000 American workers and their families,” the coalition says. “On the other hand, the ACCD is advocating for Chinese interests that harm American workers and innovation.”
Both sides in the contentious dispute remain optimistic as final government decisions approach, each side saying it is confident about a favorable outcome to the pivotal case.
The AKCA, Trexler says, looks forward to the Commerce Dept. “continuing its efforts to push back on unfairly traded Chinese imports and fight for a level playing field for more than 250,000 American workers.
“The facts in this case are on our side,” Trexler says. “The ITC and the Commerce Dept. will make a final determination based on evidence that has told the true story [and] will allow the American kitchen cabinet industry to keep fighting against the unfairness of China’s trade practices.”
The ACCD, for its part, also says it remains confident that trade officials will find that RTA imports “have not injured the petitioners in the trade case.”
“We will make sure that policymakers, elected officials and the public understand the facts of this case and the damage that duties would have on remodelers and builders across the country, as well as on American homeowners,” Goldstein says. “There is no reason our businesses cannot peacefully co-exist in the robust American market, as we’ve done for years.”
Ceramic & Porcelain Tile
But the trade dispute regarding Chinese cabinet and vanity imports is far from an isolated case. To the contrary, the conflict is mirrored by similar cases in product sectors including ceramic and porcelain tile, where a pair of coalitions have been at odds for nearly a year regarding whether U.S. officials should impose stiff penalties on Chinese imports.
That dispute came to light early last year, weeks after the “Coalition for Fair Trade in Ceramic Tile,” an alliance of eight U.S. tile producers, filed antidumping and countervailing duty petitions with the Commerce Dept. and the ITC in an effort to impose unfair-trade penalties on virtually all Chinese imports of ceramic and porcelain floor tiles, mosaics and decorative wall tiles. Members of the anti-import coalition include Dal-Tile Corp., Crossville Inc., Florida Tile, Florim USA, Landmark Ceramics, Del Conca USA, StonePeak Ceramics and American Wonder Porcelain.
As in the case of cabinets, vanities, quartz surfaces and other products, the unfair-trade petitions seek the imposition of stiff duties on imports that domestic suppliers contend are being sold in the U.S. at less than “normal value” and are causing material injury to domestic suppliers. Duties as high as 400% are being sought on the Chinese tile imports, which allegedly benefit from foreign-government subsidies and thus can significantly, and unfairly, undercut pricing for domestic products. The imports in question were valued at an estimated $481.3 million in 2018 and are used for a wide range of residential and commercial applications, including flooring, walls, countertops and backsplashes.
As also in the case of cabinets, the effort by domestic suppliers to impose trading penalties on the imports is being called into question by other industry segments, which suggest that anti-China trade fever is distorting the reality of the situation.
In response to manufacturers’ unfair-trade petitions, a second coalition, the “Ceramic Tile Alliance” (CTA) – an organization of importers, distributors, retailers, fabricators, installers and design professionals – has mounted stiff opposition to the potential duties, charging that, if imposed, they’d jeopardize the long-term health and growth of the ceramic tile industry against competing products, benefitting domestic manufacturers at the expense of ceramic tile distributors, retailers, installers and design professionals.
“Our focus is an attempt to save American businesses and thousands of American jobs that will be at risk if [the unfair-trade] petition is allowed to move forward,” the CTA says. “A tariff on imports is a tax on the industry. With tariffs as high as 400%, American companies will be forced to end long-term relationships with Chinese suppliers who’ve provided hundreds of products not significantly produced domestically.”
The CTA added that, in the event Chinese tile products can no longer be imported, “significant financial losses” for tile distributors and importers would result…making it impossible to import ceramic floor tiles, decorative wall tiles and mosaics from China. This would result in decreased consumer options [and] higher consumer prices, and could force consumers to choose other flooring products.
“Investments made to sample and merchandise product collections will be lost, as those items will be removed from showrooms and libraries,” the CTA says. “Distributors will also be faced with managing unproductive surplus inventory [and] the architectural and design community will lose entire product segments where labor-intensive, uniquely crafted designs are critical.”
The impact of the potential duties, the CTA alleges, would also be felt throughout the product supply chain.
“Our greatest number of sales transactions – which are typically the most profitable, being decorative tiles and mosaics – may suffer due to a lack of available assortment,” the coalition argues. “Dealers, retail showrooms and kitchen/bath boutiques will need to retrofit costly displays, vignettes, floor and wall installations to remove products that will no longer be available. Many specialty tile companies may be forced to close their doors, resulting in thousands of lost jobs.”
American businesses, workers and consumers “will end up paying the price for what amounts to a tax on tile. The tariffs would kill U.S. jobs, close down businesses and increase the costs of tiles across America. There are tens of thousands of tile importers, distributors, retailers and installers in the U.S., many of whom are at risk of losing their livelihoods if these petitions move forward,” the CTA maintains.
Impact of Imports Disputed
As in the case of cabinet-duty opponents, import critics argue that Chinese ceramic tile imports have not negatively impacted the growth of domestic manufacturing, as charged. To the contrary, the CTA says, U.S. ceramic tile production has actually grown substantially over the past decade, even in the face of imports.
“Numerous companies have recently announced $70-$150 million investments in new domestic production lines and factories, investments that would not have occurred if the U.S. industry were experiencing injury,” the CTA says. “The significant and continued growth of the U.S. ceramic tile industry is unmatched in any other developed country over the same period. In addition, Chinese imports have remained relatively stable over the past several years, with no huge surge in imports to cause injury to the domestic industry.”
According to the CTA, the majority of mosaics and decorative wall tiles sold in the U.S. are produced in China, which “excels at producing a vast assortment of these specialty products [and] not the lowest-cost country of import, by far.”
Lower-cost import options from other countries have increased their market share over the past years, whereas Chinese imports have remained fairly stable, according to the CTA.
Current U.S. manufacturing capacity, according to the CTA, can supply only about 30% of domestic market demand, and most domestic production consists of floor tiles. Imports of Chinese ceramic tile are necessary to meet U.S. demand and provide options for decorative wall tiles and mosaics that cannot be produced or replaced in significant quantities in the U.S., the coalition contends. Nonetheless, these items are included in the petitioners’ request to penalize, import critics note.
“While small levels of production exist elsewhere, no other country is currently capable of meeting growing U.S. demand in this product sector,” the CTA says. “Products must be imported to meet domestic demand.”
The ceramic tile case, as in the dispute involving cabinets, has been proceeding through both the Commerce Dept. and the ITC. In November, the Commerce Dept. announced an affirmative preliminary determination in its antidumping duty investigation, finding that Chinese exporters have “dumped” ceramic tile in the U.S. at margins ranging from 114.49% to 356.02%. As a result, trade officials instructed U.S. Customs and Border Protection to collect cash deposits from importers based on those preliminary rates. Final Commerce Dept. and ITC determinations in the case are expected shortly. ▪