Tariffs on Lumber Hurt U.S. Home Buyers
In his March 27 commentary, Todd Hitt defends the idea of imposing a broad range of tariffs on foreign producers, and downplays the impact on consumers. The nation’s homebuilders beg to differ. Although Hitt insists that trade barriers are not to blame for the soaring lumber prices that are harming housing affordability and putting homeownership out of reach for many aspiring buyers, we believe that the mere threat of tariffs has had an inflation impact – and that the situation could get much worse.
Although home buyers and consumers suffer the collateral damage as a result of these punitive protectionist measures, Hitt’s rationale is that this is a price worth paying because the tariffs are merely a “negotiating tactic” and are necessary to target the “bad actors.” If tariffs are a negotiating tactic, that strategy is failing miserably where lumber is concerned. No negotiations are underway, and there seems to be little interest on our side of the border in reaching a fair agreement.
As for the “bad actors,” presumably this is a reference to Canadian lumber producers and the Canadian government, who are allegedly subsidizing lumber exports to the U.S. But what if the bad actors are on this side of the border?
Major domestic lumber producers have a strong incentive to support the U.S. Commerce Department’s imposition of these unfair tariffs and to ensure they remain in place, even though the United States has been repeatedly rebuked by the World Trade Organization. In two of the three most recent investigations, it was ultimately ruled that the U.S. industry’s subsidy allegations were either unfounded or the duties improperly calculated. The third was never completed because a negotiated settlement was put in place. Going back several decades to the 1980s, the domestic lumber lobby has never brought forward a trade case where proposed countervailing and anti-dumping duties put forth by the U.S. government were supported by international tribunals.
All tariffs – whether on lumber, steel or aluminum -- fuel market volatility, place upward pressure on prices and enrich companies in the industries they are designed to protect. When tariffs are imposed, the real losers are the millions of downstream consumers who are saddled with higher prices.
Since January of 2017, rising prices have increased the cost of a typical new single-family home by $6,388. It’s no surprise that prices started to rise precipitously when the Commerce Department slapped tariffs averaging more than 20 percent on Canadian lumber shipments into the U.S. It’s no surprise that prices are continuing to increase.
The Random Lengths Framing Lumber Index hit its highest recorded level -- $512 per thousand board feet – earlier this month. This represents a 25 percent price increase from one year ago.
Again, it’s important to stress that the additional $6,388 cost of a new home is directly attributable to the spike in lumber prices. Todd Hitt would have us believe that this price increase is simply due to a shortage of skilled workers in the construction industry. While this is a problem that the housing sector has been grappling with for years, it has no direct link to rising lumber prices.
America must import roughly one-third of its lumber supply from Canada because domestic lumber production is insufficient to meet demand. Import restrictions, whether quotas or tariffs, represent a subsidy to U.S. timber companies funded by American home buyers. Therefore, the domestic lumber lobby has no incentive to support the U.S. in negotiating an agreement with Canada. Meanwhile, major U.S. and Canadian lumber firms are taking steps to insulate their businesses from major market volatility wrought by tariffs by making cross-border sawmill purchases. Having operations on both sides of the border protects Canadian and U.S. lumber companies from unexpected price fluctuations. Unfortunately, there is no hedging strategy for American consumers, who are forced to bear higher costs every time the U.S. government slaps tariffs or quotas on Canadian softwood lumber.
Clearly, these arbitrary protectionist restrictions are hindering the housing recovery, hurting millions of potential home buyers and impeding economic growth. Since the domestic lumber lobby has no reason to urge the U.S. government to return to the negotiating table, Congress should act forcefully to urge the Trump administration to move quickly to resume talks with Canada.
Over the past several decades, we have seen a sad, cynical pattern: Whenever the housing industry shows signs of strength and demand picks up, U.S. lumber producers urge the Commerce Department to impose tariffs or quotas on Canadian softwood lumber exports into the U.S. This vicious cycle needs to end now. It’s time to resume talks and come to a long-term solution that will ensure a lasting and stable supply of lumber imports into the U.S. at a competitive price.