Episode 22 - Quartz Tariffs - What’s the Drama?

 

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We are here today with Jessica McNaughton and Alyssa Holland of CaraGreen.

In this episode, you will learn the latest drama surrounding the quartz tariffs. 

JESSICA: Hi this is Jessica. 

ALYSSA: And this is Alyssa. 

JESSICA: We're here with today's episode of Build Green Live Green and today we're going to be recapping a topic that we've covered before, which is the quartz tariffs. There's been a lot of new changes and additions to the tariffs and it's still an absolute mess and getting messier. So, we're just going to clarify some of the things that are going on, some of the upcoming dates and what you should know. 

ALYSSA: Cool, yeah, so Jessica why don't we start with a bit of an overview on the tariffs? What exactly does it entail? What are we, kind of, looking for in the future with this? And then we can kind of move into those dates that you mentioned about new hearings that are coming out and things like that.

JESSICA: Sure. So, the tariffs that we're talking about, to back up a little bit, our industry has focused on building materials, so we're really talking about building material tariffs here and the one that's been the most prominent in the news for building materials has been quartz surfacing, which is the countertop that is probably the most popular in kitchens today and took over for granite a couple of years ago. Everyone switched from using granite to using quartz. It became very popular and now there's a series of tariffs that are impacting quartz surfacing. So it kind of, it started several years ago when quartz started to become prominent and Chinese companies started to get involved with quartz and as these Chinese companies started to get involved, a lot of U.S importers started bringing in Chinese material, Chinese quartz material, either under the China brand or under their own brand and it was causing a lot of competition. Which caused the price of quartz to come way down. One of the largest domestic manufacturers of quartz is Cambria, and Cambria last year decided enough was enough and they decided to file a countervailing and anti-dumping lawsuit against Chinese quartz manufacturers. So “countervailing” basically means that the government is subsidizing, so Chinese government is giving money to these factories in some way, whether it's through rebates or you know not charging for utilities or rent, things like that and “anti-dumping” means that the quartz is arriving over here from China and it's being sold for less than it cost to make it. So, typically countervailing and anti-dumping duties are they happen together. Because with all those subsidies you could sell it below your cost, kind of makes sense, but that's why those petitions are submitted together. So Cambria has submitted those, preliminary findings were that yes, in fact, certain factories were dumping. They investigate by factory. So they do a bunch of surveys, they get the results and then they assess the duties on the factories. So the net effect of that is that at this point there's about a 300 percent duty on courts coming in from China. Even higher than that in several cases. So, they found positive on the anti-dumping, they found positive on the countervailing. So now Chinese quartz imports have dropped off dramatically as a result of this. 

ALYSSA: So what are we seeing being used instead of Chinese quartz?  

JESSICA: Right, so what the Chinese did, and you know, to, you know, it was a creative move on their part actually was they started using crushed glass instead of crushed quartz.  So quartz and glass are fundamentally different materials and they started crushing glass, putting it in these slabs and you know they were selling these crushed glass slabs. Which they looked exactly like quartz, composition-wise they were different, not as hard. But that was one solution. That's what the Chinese did to stay in the game and what a lot of the importers over here and fabricators that were bringing in large quantities of quartz for, you know, selling to retail customers like you and I, they went to other countries like India and Turkey predominantly. So now what's happened? Cambria caught wind of the glass thing and in February they added the definition of crushed glass to their filing and I believe as recently as yesterday, the general rumblings are that the Commerce Department accepted the addition of glass, so that they accepted Cambria's addition of that material into their claim. Then they also, Cambria, the day before the hearing on the Chinese quartz, they filed a petition against India and Turkey as well. So that preliminary hearing I believe the conference briefings were posted on June 3rd and by the end of June we should know what the preliminary duty assessments will be on those. 

ALYSSA: Gotcha and just to kind of go back, the first initial word of the tariffs came out sometime last year? 

JESSICA: Yeah it was last year, I think it was in May of last year, so it's been about a full year since this whole process started. 

ALYSSA: And it's still kind of growing and growing. 

JESSICA: It is growing and there's a lot of fear here actually. Part of this process, there's something called critical circumstances and critical circumstances exist when the importers of this material in between the preliminary findings and you know your final ruling, if it shows a massive increase in the amount of imports, so basically people trying to bring a bunch of this in before you know the duties started taking effect, if they see that happen, they can prove that that happened and they see that uptick in imports, they consider that critical circumstances. And in that case, they'll assess duties, but they are retroactive. So that means Mrs. Jones has six slabs of quartz installed in her kitchen and whoever imported that has to pay you know you're talking about three- or four-hundred percent duties on top of that. If that material cost you $3,000, you now have to pay 9,000 or 12,000 more dollars and that is really going to hurt a lot of people. There are a lot of people concerned for the well-being of their businesses if that duty does in fact become retroactive. 

ALYSSA: So regardless of that, or, kind of, with that in mind, are they still trying to bring over large quantities of material? 

JESSICA: Well there is a small period of time where technically you can import some material. My personal thought is that that's kind of a risky endeavor not knowing you know what's going to happen here. There are several groups of people that are you know opposing Cambria's position here and they don't think the Cambria has, really has a good case for any of these tariffs. The problem is all the findings to date have been positive for the countervailing and the anti-dumping and the problem is China's not a market economy. So you can't get the real numbers on what it costs for their materials. So when they try to assess the anti-dumping, they can't get real numbers out of China, so they have to guess if they are in fact subsidizing and they have to guess at what their costs are. So it's really hard whereas with India and Turkey, those are market economies. So you can assess relative to you know your own market, because their market economy is unlike China. 

ALYSSA: So that makes it really tricky. 

JESSICA: Makes it very tricky, and there's companies that have banded together, like I said several of them, there's the American Quartz Workers Coalition as well as a couple others that are spearheaded by some large companies that have written letters to senators, written letters to the ICC and their argument is, “hey, we employ a lot of people here. We employ fabricators, we have salespeople, you know the quartz industry employs a lot of people here in the US and without this Chinese quartz, this lower and mid-range quartz, all these people are going to be unemployed.” Now my problem with that argument is that it doesn't address the anti-dumping and countervailing ruling. So I think they're kind of not on the same playing field there. Their argument is that Cambria caters to the high and mid-range and Cambria is unfairly going after Chinese courts companies when they in fact don't even compete and also with the Indian and Turkish companies you know they're saying, again that that's a different segment of the market. Again, I think that argument needs a little more supplementation because the fact is, you know, that low end of the market was created by that you know cheaper material coming in and it made it more accessible to people. So it's a gray area there. You've got this great group of people that work with quartz that have employed all these people and now that spigots been shut off and every time, they try to solve that problem and find a new source, Cambria files a lawsuit against that group. So India, Turkey and China now and then what? Who's next? Vietnam, Philippines? China announced yesterday that they were investing in the Philippines and building a quartz factory there. What's the upside for us in the U.S? Besides Cambria, who's really going to benefit here? So there was also an announcement that Spectrum Quartz, which is a Chinese quartz manufacturer, he's opening a facility down in South Carolina. So that's supposed to, I believe, be up and running by the end of the year. 

ALYSSA: Oh wow. 

JESSICA: So maybe it's propelling some investment in the US by these Chinese companies, but, you know hopefully, they're employing locally, I don't know. But you know that's their recourse to solve the problem is to you know establish facilities here to get around those tariffs. 

ALYSSA: I wonder if that would even be on a similar price level, that same low to mid-range or prices would go up. 

JESSICA: Right, I mean I think you're seeing quartz pricing definitely go up right now. As soon as this happened who was the first one out there raising their price? Cambria. All the other big quartz suppliers from Spain, Italy, they held their prices. They were very honest about holding their prices, Hanstone, Silestone. But Cambria raised their prices. 

ALYSSA: So you mentioned Spain and Italy, are they being affected at all? 

JESSICA: So as part of the tariffs related to the Chinese anti-dumping and countervailing, so for anti-dumping and countervailing as it relates specifically at quartz, no they haven't been affected. But, there is a lawsuit that's been going on for 15 years related to Airbus and the European Union. There were four countries that had a coalition, an Airbus coalition, there was, there's been this WTO battle going on for a while about that. Well, interestingly there was a hearing a couple weeks ago about whether that trade dispute basically should be kind of amended or it's almost retaliatory I guess to include some goods from European Union countries that don't have anything to do with Airbus, but basically as a way to kind of get back at them. And on that list are two of my favorite things, wine and cheese, which I'm not happy about. But also quartz surfacing is on there. I believe marbles excluded for some odd reason. But no, quartz is on there. So it's this weird hodgepodge of materials, but quartz surfacing is on there and they're talking about a 100% tariff on that. So independent of everything going on with China and independent of Cambria, there's this airplane dispute that's threatening to whack Spanish and Italian quartz surfacing with a hundred percent tariff. So the problem is if you're using courts today with the threat of it being retroactive, with the threat of these tariffs on Europe, the unknown tariffs on China and on top of those Chinese tariffs are the ones that Trump's tacked on for all building materials effectively coming over, you know that huge long list, and then he puts 5% on Mexico. So you've got this whole mix of things going on. But it makes it very very honestly questionable and cost critical. I mean you don't know what your cost is going to be. You can specify quartz today, but by the time that contractor, that fabricator goes to buy it, they don't know what it's going to cost. So it's really, we say quartz is in a quandary or quagmire, you know we come up with all these you know quirky words that start with Q to describe the situation, but it really is confusing right now, and I think that's why at CaraGreen, we're digging into alternatives. I mean we've been talking about PaperStone. PaperStone’s a great alternative to quartz. It's made in the US and it's not caught up in this mix. Lapitech, sintered stone, it is what's next anyway. So why not use that instead of quartz? It doesn't have all the silica issues of quartz and it holds up to absolutely anything and it really is kind of the next generation of surfacing. So you got to look at you know materials that are made in U.S like Durat solid surface, IceStone, PaperStone and really think about those as alternatives to quartz from other countries, because you just don't know where Cambria is going to go at this point and every ruling at this point has gone in their favor. 

ALYSSA: And those stone fabricators or stone suppliers, who knows what their future looks like? 

JESSICA: I know, it's really unfortunate and I think that they, maybe they made some decisions about you know buying material that they could make more money on and that's what you know Cambria's real argument is. But people make business decisions in directions that they think are going to be the best for their companies and these business decisions allow them to employ more people, to create a market for low to mid-range quartz that didn't exist before. You know, that was the wheelhouse of granite or laminate or other materials that were inferior. So they allowed this good material, quartz, to get into this segment, but that caused it to become a commodity and independent of all the tariffs and the dumping from a designer perspective, quartz is a commodity. 

ALYSSA: And it’s time for something new. 

JESSICA: Yeah, all right, well you know, I mean, I think that's a pretty good segue I think you know, we've got a lot of great alternatives on our website. Quartz is not a bad material, it is in a mess right now and there will be some shakeout and there will be some fallout and you know we'll keep our listeners updated on what's going on, because it is confusing. But the big next meeting is on June 11th, that's the final injury determination and that's going to impact a lot of people. So, you know, stay tuned to that and you know we'll update our listeners when we get that information. 

ALYSSA: Yeah you can check out our podcast, www.caragreen.com/podcast or our blog, also for information to stay up to date. This is Alyssa. 

JESSICA: And Jessica.  

ALYSSA: Thanks.