Kitchen & Bath Design News

AUG 2019

Kitchen & Bath Design News is the industry's leading business, design and product resource for the kitchen and bath trade.

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While most businesses are seemingly taking tariffs in stride, the outcome of the U.S.-China trade dispute on the kitchen and bath industry remains murky. BY ELIOT SEFRIN Tariffs Roil the Trade 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 head- lines 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, consider- able uncertainty lingers over whether a substan- tive 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 technolo- gy, 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-bil- lion tax on housing, and harm housing afford- ability," says NAHB Chairman Greg Ugalde, adding that government officials should "move quickly to resolve trade disputes that are need- lessly raising the cost of key building materials and exacerbating the housing affordability crisis. "Tariffs on imports are contributing to the ris- ing 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 con- flicts 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 un- clear. 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 remod- els that are heavily dependent on imports of cabinetry, countertops, ceramic tile, plumb- ing 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, Page 12). 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 under- mining 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, Pages 15 & 18). 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 viola- tions, cyber theft and forced technology transfers. Unfair-trade petitioners are seeking the impo- sition 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 " 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." Nino Sitchinava, principal economist, Houzz 82 Kitchen & Bath Design News • August 2019 SPECIAL REPORT

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