Tariffs Roil the Trade
authors Eliot Sefrin | August 6, 2019
WASHINGTON, DC — The issue of tariffs on Chinese imports may be making headlines across America, but the impact of the duties on the kitchen/bath product supply chain seems far less dramatic than the headlines suggest.
At least for now.
However, while most kitchen/bath-related businesses are seemingly taking the tariffs in stride – adapting to the duties even in the face of market volatility, uncertainty and higher prices – the outcome of the lengthy U.S.-China trade dispute and its resultant tariffs remains murky, even foreboding.
The tariff issue took center stage in Washington in June, as representatives from Wall Street, trade associations and corporate America – including several with close ties to the kitchen and bath market – testified at government hearings regarding the impact the contentious U.S.-China trade war is having on businesses and consumer confidence.
Trade talks between the two countries also resumed last month after a breakdown in negotiations prompted the U.S. to hike tariffs on $250 billion worth of Chinese-made industrial and commercial products, and China to retaliate with tariffs on $60 billion worth of U.S. imports. The Trump Administration then threatened to impose punitive tariffs of up to 25% on nearly all remaining Chinese exports to the U.S., including consumer goods, and China threatened additional escalation.
While the economic superpowers have since agreed to postpone additional tariffs, considerable uncertainty lingers over whether a substantive agreement can be reached, no deadline has been set to strike a compromise and existing tariffs continue to impact the market.
Opinions about the tariffs, in the meantime, remain sharply divided – shaped by factors as diverse as market niche, product mix and political perspectives, according to dealers, designers, manufacturers and business leaders interviewed by Kitchen & Bath Design News.
Some are applauding the duties, since they see the tariffs raising prices on low-cost, government-subsidized Chinese imports, thus leveling the competitive playing field for domestic suppliers, protecting U.S. jobs and serving as a lever to protect American technology, innovation and intellectual property. Others, however, oppose the duties, charging that tariffs are an uncalled-for trade-policy tactic, resulting in market instability, corporate uncertainty and price increases that will ultimately prove detrimental, perhaps disastrous, to American businesses and consumers.
But regardless of opinion – and whatever trade policies may be enacted in the future – tariffs are clearly roiling the residential construction market, including the kitchen and bath sector.
Rising costs from tariffs on billions worth of imported building materials have already had a detrimental impact on residential construction, impacting housing affordability and serving in effect as a tax increase on housing, according to the National Association of Home Builders.
“Tariffs on Chinese goods represent a $1-billion tax on housing, and harm housing affordability,” says NAHB Chairman Greg Ugalde, adding that government officials should “move quickly to resolve trade disputes that are needlessly raising the cost of key building materials and exacerbating the housing affordability crisis.
“Tariffs on imports are contributing to the rising cost of building materials,” Ugalde observes. “These higher costs are putting homeownership out of reach of working American families. The administration must resolve these trade conflicts in a manner that will provide a fair deal to American home buyers and businesses.”
Tariffs also inevitably trickle down to the cost of most kitchen and bath remodels, since many of the finished products and raw materials used in the projects are subject to import duties of one type or another, housing analysts say. Cabinets, flooring, plumbing fixtures, major appliances, lighting, natural stone and ceramic and porcelain tile are among the laundry list of products already being subjected to tariffs imposed in the early rounds of the U.S.-China trade war. Additional duties would almost certainly impact prices further. Consumers, consciously or not, are likely absorbing some of those added costs; to what degree they’ll continue to do so remains unclear. And prices are likely to remain elevated even if the U.S. and China reach a trade deal, and no new tariffs are imposed.
“Last year’s 10% increase in tariffs on imported building materials is likely one of several forces hitting consumer pockets in areas such as kitchen and bathroom remodels that are heavily dependent on imports of cabinetry, countertops, ceramic tile, plumbing fixtures and vinyl flooring from China,” says Nino Sitchinava, principal economist for the Palo Alto, CA-based online remodeling platform Houzz. She adds that Houzz expects a similar impact in kitchen prices this year (see Consumer Buying Trends).
Separate from the broad issue of tariffs are investigations underway by U.S. trade officials tasked with determining whether imports of low-cost, Chinese-made products are undermining the businesses of domestic cabinet/vanity manufacturers, as well as U.S. suppliers of ceramic and porcelain tile, quartz surfacing and other commonly used kitchen and bath products (see related stories).
At the heart of those probes are allegations that Chinese manufacturers benefit unfairly from government subsidies and other economic programs that enable them to sell “dumped” product at under-market value. Critics also want China to halt several longstanding unfair-trade practices, including intellectual property violations, cyber theft and forced technology transfers.
Unfair-trade petitioners are seeking the imposition of antidumping and countervailing duties on Chinese suppliers as a way of accelerating the movement of manufacturing away from China, which dominates global production for many products impacting the kitchen and bath trade. The potential duties, however, are being staunchly opposed by recently formed alliances of importers, distributors, retailers, contractors and others who contend that the punitive duties, if imposed, would dramatically raise prices for imported RTA cabinets, ceramic and porcelain tile and quartz surfacing, having a calamitous effect on companies and jobs that rely on those products.
Trade associations with ties to the kitchen and bath trade have lent their voice to a growing chorus of objections over the imposition of potential new tariffs on products aimed at the residential-construction sector. Among the trade associations that have voiced concern, aside from the NAHB, are Plumbing Manufacturers International (PMI), the American Society of Interior Designers (ASID) and the American Home Appliance Manufacturers (AHAM).
According to the PMI, which testified at June’s government hearings, dozens of plumbing products and components – including toilets, sinks, shower heads and faucet handles – are included on the latest list of products targeted for tariffs.
“These additional proposed tariffs will cause disproportionate harm to U.S. plumbing manufacturers, our workers, suppliers, distributors, retailers and American consumers,” said Kerry Stackpole, executive director of the PMI, the association representing most major plumbing products manufacturers.
The PMI said it is one of 150 trade associations supporting “Tariffs Hurt the Heartland,” a national coalition of organizations that contends that broadly applied tariffs are not an effective tool for changing China’s trade practices but, instead, are nothing more than taxes paid by U.S. companies and consumers – not China.
The PMI, along with other coalition members, have been pushing the Trump Administration to reach a resolution on trade issues with China and avoid additional tariffs.
“Our members estimate they will incur millions of dollars annually in added direct costs and expenses if the duties are implemented, not to mention millions of dollars of lost sales resulting from increased prices on these products,” Stackpole testified. “These are real dollars that will no longer be reinvested back into their companies and workforce.”
According to the PMI, tariffs will ultimately cause supply chain disruption, artificially raise the cost of domestic production, stifle job growth, eliminate export markets for U.S. manufacturers and invite retaliatory tariffs on American-made products. The tariffs and the uncertainty they’ve created have also resulted in deferred investments and price increases to manufacturers and consumers, as well as delayed decisions on home-buying and residential remodeling, the PMI said.
“We agree that our trading partners must abide by global trade rules, and we support the administration’s efforts to address unfair trading practices,” Stackpole said, adding that the PMI encourages the administration to reset U.S.-China trade relations and negotiate an agreement that addresses longstanding structural issues, improves U.S. global competitiveness and eliminates tariffs. “We believe this goal can be achieved without taxing Americans.”
“We hope a final deal will resolve the structural issues that are at the core of the trade dispute and will fully protect American technology, innovation and intellectual property,” Stackpole said, adding that the PMI is eager for a swift resolution “that would remove the tariffs that the U.S. and China now impose on the bulk of products that move between the two economies. The economic harm to American consumers and manufacturers will only worsen if the Administration chooses to retain or add punitive tariffs against China,” he observed.
Several PMI members, including Moen, Inc. and LIXIL – whose portfolio includes Grohe and American Standard – concurred with that viewpoint, as did other trade associations.
Indeed, according to AHAM, additional tariffs would have a direct impact on home appliance manufacturers, increasing costs and likely leading to higher prices for consumers.
“As an industry, AHAM’s members have been successful global traders for decades, and support free and fair trade that allows for unfettered competition that drives innovation and operational efficiencies in the marketplace,” said Jennifer Cleary, AHAM’s v.p./regulatory affairs, adding the tariff war “pulls consumers’ homes into the middle of an international trade dispute.”
Impacted by current and future tariffs are dozens of components used in the manufacture of most major appliances, as well as numerous finished products, including refrigerator-freezers, ventilation hoods, microwave ovens, wine chillers and countertop ovens, AHAM said.
“These tariffs – in addition to the tariffs on imported steel and aluminum upon which home appliance manufacturers in the U.S. rely – are taxes,” Cleary said. “And higher prices for American consumers is the likely result of increased costs to import home appliances and the parts and materials needed to make and service them in America. American manufacturing jobs could also be lost.”
While AHAM also said it supports the administration’s goal of addressing China’s trade practices, “we believe that these tariffs will not effectively do that…and will instead increase consumer costs and divert company resources away from innovating and bringing new features to their customers,” the association noted.
IMPACT MIXED, WIDE-RANGING
But if opinions about the tariffs are widely mixed, so too is the impact the duties are having on dealers, designers, manufacturers, distributors, importers, cabinet shops, remodelers, fabricators, builders and others across an industry that embraces myriad business models, targets multiple market niches, and serves high-end clients, do-it-yourselfers and everyone in between.
Most companies, for the time being, say they are simply trying to mitigate the impact of the tariffs. Many tell KBDN they’re holding off on price increases and absorbing added costs while monitoring the situation. Others – including U.S. suppliers for whom demand has risen – have already implemented price increases to protect profit margins. Still others are seeking relief from their Chinese trading partners, stocking up on product to preserve prices should future tariffs be imposed, or searching for alternative supply sources in countries like Cambodia, Vietnam, India and Turkey.
“I see the tariffs both positively and negatively,” says Jeffery Eichenseer, director of marketing & product development for Conestoga Wood Specialties, a cabinet component supplier in East Earl, PA. “The 25% tariffs are helping our customers be a little more competitive with Chinese-imported cabinetry, which should result in higher demand for our components. On the negative side, we import some wood components from China, which means higher pricing that we need to pass on to our customers.”
Plywood tariffs had a major negative impact on most of the cabinet industry, as U.S. plywood manufacturers took the opportunity to raise prices, says Eichenseer, adding that some cabinet component suppliers are attempting to find alternative product sources to avoid the tariffs, “but we’ve absorbed the first round and made some modest price adjustments.”
Others lean to an even-more-positive view of the tariffs.
“The more tariffs imposed on Chinese cabinet manufacturers, the healthier our business becomes,” said Greg O’Bymachow of Solana Beach, CA-based GKD. “Quality, customer service and a better understanding by the end consumer of the quality of the products they’re receiving – all go up substantially, to our benefit.”
“We believe we’ll gain business because of the tariffs,” said Chris Hansen, general manager of Adams Sales Group, in Cedar Falls, IA. “The imported-cabinet suppliers have had to increase their prices, thus American-made cabinets are now more competitively priced and positioned when compared to Chinese imports.”
“Rising prices have driven away budget-conscious clients who would have benefited the most from purchasing Chinese imported products. We offer a wide array of brand-name products that are unaffected by the tariff situation, and we’re big believers in promoting American-made products, so I do not believe we have taken as big of a hit as many people would like to believe,” said Alex Perdomo, owner of ARS Countertops, Oakland Park, FL.
“Sales have slowed down some, [but] we don’t believe it has to do with our pricing, which we have held at current levels,” said Boyd Lilly, president, The Stand-in, Littleton, CO. “There are a lot of factors to consider – cabinetry raw materials, wage increases, labor shortages, shipping cost and construction labor costs due to shortage of skilled trades. We don’t believe it’s all caused by tariffs. We know the hardship tariffs cause but believe that they’re best for the long term.”
“As countertop fabricators, the tariff situation has increased quartz slab prices for several of our suppliers based out of China,” said Alex Perdomo of ARS Countertops, in Oakland Park, FL. “The current economic landscape has made for a more competitive industry, and many companies affected by the tariffs have made efforts to improve other facets of their organizations in order to retain our business. Our average consumer is well-educated on the tariff situation and is understanding of the increase in pricing.”
“We’re open to alternative sources that our plywood distributor is bringing to us,” said Kent Martin, president/CEO of Signature Custom Cabinetry, in Ephrata, PA. “We have built in the additional costs to our annual increases, but they’ve not taken us out of our normal range on increases. We’re not losing business at this point as a result of the tariffs.”
“We offer both American-made cabinets and imported, knock-down cabinets, so we see both sides of the issue,” said Dawn Zarrillo, of Zarrillo’s Custom Design Kitchens, in Duanesburg, NY. “What I love is that the tariffs have made our American-made cabinets much more competitive, for a better-built and finished cabinet. I believe this is best for our country.”
“Tariffs are an important weapon in today’s trade-war front,” says Fred Bowen-Smith, of The Kitchen Strand, in Hobe Sound, FL. “If products are subsidized by a government to be cheaper than market value, and that product is dumped into our market, hurting our manufacturing base, then something must be done. An attempt by a country to buy the market and destroy the competition is, in essence, a declaration of war and our efforts to level the playing field are fair,” Bowen-Smith says.
“It’s about time we…stood for American workers.”
“Every one of my clients is pleased to know that they’re helping to keep jobs and families together,” says David Wagner, general partner at Pasadena, CA-based Go Green Solutions. “People are getting sick of saving dollars at the expense of others’ livelihoods,” Wagner says. “Some things are more important than money.”
Not everyone, however, is enamored of the tariffs – either in theory or reality.
“The major problem is in having suppliers make price changes after quoting products on projects,” says Mark Anderson, of Persona Kitchen & Bath Solutions, in Wichita, KS. “Many suppliers used to hold prices for 30-60 days, and now they’re changing pricing every week, even when the tariffs don’t affect the inventories they have on hand.”
“Customers were used to the affordable import cabinets and that set the bar for expected pricing on kitchens and baths,” says Andrea Klemm, a designer at Knecht Home Center Sonny’s Ace, in Canon City, CO. “Builders are now complaining and starting to shop around for other cabinet dealers because they have sticker shock at the new prices and hope to find a dealer who is somehow not hit by tariffs,” Klemm says. “The tariffs are also resulting in lost sales, as homeowners who budgeted for renovations are now facing substantial cost increases. I’ve had clients say that they want to wait a few years and see if prices return to normal after the trade war stops.
“A lot of homeowners we’ve been working with can now no longer afford their new kitchen,” says Elana Riedel, president of The Cabinet Lady, in Jurupa Valley, CA. “Also, a lot of rental-property owners who normally update their houses every 5-10 years cannot afford a new kitchen. We’re seeing a lot of them just paint the old cabinets and maybe install a cheap granite countertop.”
Adds Riedel: “We have raised our prices 25% to cover the tariffs, but even with the increased prices, the similar quality domestic cabinets are still two to three times the price of the imported products, so our customers are sticking with imported cabinets and countertops. Until domestic suppliers can find a way to lower their prices, my clients just won’t be able to afford them.
“We’re a small company and operate on narrow margins, so we can’t absorb the increase, she observes. “Normally by this time of year, we would have sold and installed 12-15 kitchens. But this year, we’ve only sold and installed nine kitchens.
“Raising the prices on the imported cabinets will not result in the domestic cabinet companies getting more business, as people just can’t afford them. For my clients, the choice is not between imported and domestic cabinets. It’s between imported cabinets or nothing at all.”
According to Janet Jones, of Spokane, WA-based Great Floors, the tariffs are having a detrimental impact on business, since orders placed prior to the imposition of the duties cannot be fulfilled for the prices that were quoted.
But despite the disruption, “it’s a great move not to be so dependent on foreign goods,” Jones says. “It’s a costly inconvenience, but we all need more quality and less quantity.”
“It’s impacting my business greatly. We don’t have as many selections to offer as before the tariffs [and] price quotes are subject to change at any moment,” said Joyce Rosenberg, manager of Renaissance Marble Work, in New Hyde Park, NY.
“Current clients are not happy that these ‘additional pass-through costs with no benefits’ are being added to their project costs,” said Robert Larson, president of Three Arch Design, in San Diego, CA. “The end result is a re-evaluation in terms of moving forward with many items.”
The majority of those questioned, however, tell KBDN that the impact of tariffs has thus far been minimal or non-existent – or that it’s simply too early to tell. While a sense of uncertainty and volatility permeates the trade, and costs are clearly rising, business for the most part continues unabated, dealers and designers say. In many cases, purchasing and specifying practices remain unchanged.
In some cases, rising costs or product shortages are resulting in diminished revenue, as consumers with limited resources balk at rising costs and/or defray remodeling decisions as they reassess available finances. In far more cases, however, alternative product options have been embraced by consumers who’ve accepted price increases, are generally happy to buy price-equivalent alternatives, particularly if they’re American-made, and have been persuaded to focus on issues like quality, features and service rather than simply price.
Most feel that, regardless of how the issue plays out, they will ultimately find a way to adapt – just like the industry has managed to do for decades. ▪