Important Update – 301 Duties and Tariffs

**UPDATE – February 26, 2019**

• President Trump announced via Twitter that the increase for the Section 301 List 3 scheduled to occur for U.S. imports from China will be delayed.

• The increase to 25 percent was scheduled to occur on March 2.  Instead, the 10 percent rate will remain in effect for a yet to be determined timeframe.

• A summit is being planned with President Xi tentatively towards the end of March.  More details will hopefully be released soon.
• We expect a Federal Register notice announcing the delay presumably to be published no later than this Friday (March 1st) and will likely include additional details related to the delay.

Thanks for your continued support of MGroup™ and its brands, Mstone™, Mshower™, Gainwell, Aspecta®, and Mteriors™. We received some good news on the subject of the ongoing Trade War with China. President Trump and President Xi of China met at the G20 Summit in Buenos Aires, Argentina and have reached the following agreements.

It appears that the 301 tariffs adding 10% duties on many products will not escalate to the 25% level in January and will remain at the 10% level going forward unless China does not provide the levels of purchasing of American products that this country has agreed to. It is our opinion and an opinion shared by many others in our industry that this 10% tariff will not impact the decision to purchase Chinese products that have the 10% duty level, but if the rate had increased to 25% then there would have been a major concern.

“No one country can provide the volume of quartz countertops needed for the US hospitality market, including any US sources.”

Our customers have asked for a supply chain that will provide our client’s options to present to their clients. It is very important to understand that no one country can provide the volume of quartz countertops needed for the US hospitality market, including any US sources, that has been displaced by Cambria’s politically influenced anti-dumping and countervailing duty action. We continue to work with low-cost and high-quality sources outside of China and from other low-cost regions to balance our production needs with the needs of the market. I have just returned from inspecting several factories in regions other than China that can meet our needs and Scott Murray, MGroup’s™ Vice President of Manufacturing & Product Development will travel again this coming week to work on putting in place the processes with our resources that will be providing fabrication for quartz and other countertop products in the future for MGroup™. I have scheduled other factory inspection trips to other resources, scheduled in Mid-December.

The uncertainty of purchasing from a Chinese supply chain has been reduced significantly. The anti-dumping and countervailing duties applied to quartz material made in China have not changed. Continuing political and legal efforts by MGroup™ and other key industry players is ongoing to try and reverse or minimize these outrageous and politically motivated decisions.

At the BDNY event, held in New York, there was a panel discussion about the duties and tariffs issue. The link below very accurately outlines our clients’ concerns.

https://www.pri.org/stories/2018-11-29/trump-s-tariffs-cause-headaches-his-own-industry-hotels

On Trade, President Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% at this time. This is very good news for our loyal Chinese vendors and to our clients, who can now anticipate some level of certainty in their future transactions with our Chinese resources. China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other products from the United States to reduce the trade imbalance between our two countries. To further balance trade, China has agreed to start purchasing an agricultural product from our farmers immediately.

Source: www.qz.com

President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%. This is a significant comment, as it means that this agreement is not just “words” but has targets that need to be achieved.

President Trump stated: “This was an amazing and productive meeting with unlimited possibilities for both the United States and China. It is my great honor to be working with President Xi.”

While this decision does minimize the “uncertainty” of future transactions regarding trade with China, it has been a “wakeup call” for the hospitality industry, as the panel discussion, which included Gus Sarff from GS Associates, Michael Suomi from Stonehill Taylor and Helen Jorgensen from Host, so accurately described. And while it does nothing to reduce the anti-dumping and countervailing duties levied in an almost absurd action by the Department of Commerce against the Chinese quartz industry brought about by one bloated and overcoated US resource, Cambria. MGroup™ will continue to aggressively move to “balance” our production and will continue to look for other competitive resources in other regions, outside of China, that will create a resource to clients that want to lower their costs and risk of duties and tariffs in the future.

Not only has this changed MGroup’s™ way of thinking about resources offshore, but this entire situation has also been a wakeup call for the hospitality business. At the recent panel discussion at the BDNY event shown in the link above, a group of purchasing agents, designers and end users, including major MGroup™ customers, realize that “all of the eggs in one Chinese basket” is not a good plan going forward. While we share Michael Suomi’s, Principal at Stonehill Taylor’s comments about the importance of long-term and lasting relationships with our loyal Chinese resources and do not anticipate a retreat from these important team members, other than the quartz segment, we do plan on offering more choices on product sourcing from other regions, like Eastern Europe.

“I don’t think we’ll ever see a hospitality supply chain that will ever see as much concentration of production resources from one country in the future.”

After the completion of this last round of inspection and processing trips, MGroup™ will make a major announcement detailing our new programs for quartz countertop that will move ALL quartz material sourcing and fabrication out of China to products and regions that are not impacted by the punitive and biased anti-dumping and countervailing quartz decisions so adversely affecting our customers. This will be a critical announcement to all clients involved in the sourcing and usage of countertops that have been impacted by what we believe is a biased and flawed political action against Chinese quartz producers.

We believe that a countertop program based on results based on certainty, not circumstance, that MGroup™ will announce will be well received by our clients and go a long way towards bringing products absolutely necessary for a supply chain to provide high-quality products on a predictable lead time at pricing that meets revised budgets. MGroup™ will emerge from this period of uncertainty with a much stronger supply chain, supported by our Meridien Global Sourcing quality assurance and logistics teams in these new resource regions that will support our clients’ preferences for resource options.

The disruption in the supply chain, especially as it relates to quartz products, is nearing a successful resolution, particularly at MGroup™. We will continue to try and keep you up-to-date on this subject.