Home renovation demand is soaring, and so are the costs to do it, thanks to a new round of tariffs on goods imported from China.
The latest round hits about $10 billion worth of Chinese products exclusive to homebuilding and remodeling, according to the National Association of Home Builders. The tariff starts at 10 percent, but could rise to 25 percent by the end of the year. That would be equivalent to a $2.5 billion tax increase on the industry.
Contractor Justin Sullivan manages home renovation projects in the Washington, D.C., area and says costs are going up so much so fast that he is doing something he has never done in his more than a decade in the remodeling business.
"Clients and contractors are having to set contracts with escalation clauses for projects that are being scheduled for six months from now, largely because we're not sure how far prices are going to go north," he said.
Sullivan said it is a quick education for new clients, who were already fighting to get projects scheduled, given the high demand and labor shortage. Higher home values have given homeowners more ready cash and more incentive to improve their investment. Now his clients have one more worry.
"It makes them want to do the project more quickly, trying to get it done. Then it's looking at ways to save money that will bring down the costs so the overall budget doesn't increase," he said. "It puts a little bit more pressure on everyone to try and be as diligent about the costs as possible."
Tariffs have already increased the costs of Canadian lumber as well as steel and aluminum imports. The new round adds everything from wall and floorboard to light fixtures, cabinets, heating and cooling equipment, and the tile for bathrooms and backsplashes.
David Benson is vice president of sales at Maryland-based Architectural Ceramics. He says his prices will go up, especially for mosaic, glass and patterned tile, most of which is not made in the United States.
"It would impact the cost on ceramic and natural stone and glass materials, and it would increase the cost at least 15 to 20 percent of our import duties on those items so costs will go up for sure," said Benson.
The latest tariffs will also impact materials for countertops, like granite, marble and especially quartz. The U.S. Commerce Department just announced the results of an investigation into illegal "dumping" of Chinese quartz into the U.S., finding, "that exporters received countervailable subsidies ranging from 34.38 to 178.45 percent," according to its release.
As a result it will impose import duties on the quartz in addition to tariffs. In 2017, U.S. imports of certain quartz surface products from China were valued at an estimated $460 million, according to the Commerce Department.
That is already increasing quartz prices, just in anticipation of the new duties.
"I know for fact that one of my distributors stopped ordering three quartz colors because prices are jumping high enough so it's not worth it anymore," said Goran Zucik, sales manager at Rockville, Maryland-based Stone & Tile World. "China was producing them by hand and no one can copy the way they were making some colors. Some of my cabinet companies want to use these colors in their remodeled showroom, but I have to tell them that these will not be available."
The move, however, will benefit U.S. quartz-maker Cambria, which filed the complaint with the Commerce Department.
"This determination is the result of the agency's thorough investigation and confirms what the petition alleged—that China has unfairly subsidized quartz surface products to highjack the U.S. market and as a result these unfairly traded imports have flooded the U.S. market," said Marty Davis, president and CEO of Cambria. "This is a critical first step toward restoring a level playing field within our industry, fulfilling the obvious axiom: there is no such thing as free trade without fair trade."
Chinese tile was generally cheaper than U.S.-made tile, so the tariffs will level the playing field for U.S. tile makers, even if it increases costs for consumers.
"There have been three or four manufacturers of porcelain tile right in Tennessee over the past two years that have popped up, so that business will increase, and I think it will help the American market for sure," added Benson.
— CNBC producer Lisa Rizzolo contributed to this report.