The China Conundrum

Photo by Markus Ludtke from Unsplash

By Emerson Schwartzkopf

It was 25 years ago, when I covered the news of a different industry, when I had a long conversation with one of the leading business owners in the trade. Our career paths and fortunes changed dramatically, but one thing he said keeps coming back to me. As a software engineer, he had a leading role in bringing automation to a process then dominated by hand-crafted production. (Much of my life has been, as Yogi Berra once pontificated, “déjà vu all over again.”) And, as a Chinese-American entrepreneur, he had a firm opinion on how business would continue in the future. “The 20th century is the American century,” he said. “The 21st century is going to be the Chinese century.” Today, we’re one-fifth of the way through the century, and there’s more depth than dream in his vision. China continues to build its economic position in the world economy, from massive markets like steel and technology to our corner of hard surfaces and related goods. That’s not saying that people like to see China deep in their domestic markets. In the past decade, it’s been a standard phrase when describing most U.S. business problems: Blame China. In the name of rectifying trade – the ol’ “leveling the playing field” – the United States rolled out tariffs, from a 25% duty on just about anything arriving from China to the 300%+ levies on Chinese-made quartz surfaces and porcelain tile. All of these actions have been in place for several years … so have they worked? With quartz surfaces and porcelain tile, the massive tariffs all but cut-off China from the U.S. market. In the space of a few years – 2018 to 2020 -- China’s shipments to the United States dropped by more than 99% in value. With natural stone, tonnage from China dropped by 23%, from 578,811 metric tons in pre-301-tariff 2017 to 445,956 metric tons last year. With results like that, you’d think the policies worked just fine. It’s true that numbers don’t lie … but they can also be maddingly clear as mud. Let’s take that drop in natural-stone shipments to the United States. China took quite a hit in the past few years, but how did other top U.S. sources perform? Here’s a chart tracking U.S. natural-stone imports in the past 10 years from the five leading countries of supply:

(Includes sectors of worked granite, worked marble, travertine,other calcareous and other stone. Non-roofing slate is excluded because shipments can be made in either physical volume (cubic feet) or weight.)

For half that time, China ranked #2 in total tonnage behind Brazil. In 2020, China dropped to fourth, just under Turkey. But take a look at how China’s total relates to the other four countries; it generally follows that year’s overall trend. Yes, China waned a bit in the past few years when compared to others, but that’s also been the same time that Turkey ramped up marble shipments and both Brazil and India saw large gains with quartzite. China’s down a bit, but it’s not out of the game. China’s quartz-surface and porcelain-tile manufacturers didn’t go dark after losing more than a three-quarters-of-a-billion-dollars annual market in the United States. That material went elsewhere, such as Canada and Australia, as China elbowed into other markets and lowered overall price points. Of course, stopping that flow of low-priced material from undercutting the U.S. market is why those large unfair-trade tariffs went into effect. The actions certainly chased the Chinese from the U.S. market, but what about halting low-priced surfaces at U.S. ports-of-entry? In 2017, before the unfair-trade tariff on China, U.S. imports of quartz surfaces totaled 112.8 million ft² at an average value of $8.77 ft². Last year, with China out of the picture, quartz-surface shipments came to 134.7 million ft² for a 19.5% increase, and a tiny decline of three pennies on value to $8.74 ft². Porcelain tile? The pre-unfair-trade imports in 2018 totaled 997.1 million ft² with a value of $1.01 ft². Cutting China loose in 2020 did cut the flow of imports by 4.5% to 952 million ft² -- but the value also dropped by 4% to 97¢ ft². Again, numbers don’t lie. Using tariffs against Chinese hard-surface goods certainly curtailed its progress in the U.S. market. And, using the same sets of import data, China’s still well-entrenched in U.S. natural-stone use, and other countries filled the vacuum left by China’s withdrawal from quartz surfaces and porcelain with products just as low-cost, if not lower. Yes, funding from Chinese companies is going into other countries to produce products to evade U.S. tariffs, but that can’t begin to account for all of the low-cost surfaces now entering the country. Other countries are learning from China in low-cost mass production, and we’re going to see more. We may not like it, but we don’t have to worry about the coming of China’s century anymore. It’s already here.