Slapping tariffs on Canadian lumber has been described as an anti-consumer measure that could throw a dash of cold water on a slow-burning housing-market recovery. But will it?
The National Association of Home Builders, whose interests are often in-line with those of lumber dealers, is one of the sharpest critics of the plan to impose steep duties (averaging about 20%) on Canadian Softwood lumber.
“The NAHB is deeply disappointed in this short-sighted action by the U.S. Department of Commerce that will ultimately do nothing to resolve issues causing the U.S.-Canadian lumber trade dispute but will negatively harm American consumers and housing affordability,” Granger MacDonald, the group's chairman, said in a statement.
"The NAHB is deeply disappointed in this short-sighted action ....”And the group has done its math: a tariff of 19.9% would lead to a 6.4% increase in U.S. home prices, or an average of $1,236 for a single family home.
That’s a highly inflated figure, says the U.S. Lumber Coalition, which petitioned for the action. The group claims unfair competition from producers it says are subsidized by the Canadian government.
The tariffs, announced late Monday, will “begin the process of creating a level playing field for the future and allow for U.S. manufacturers to make essential investments and expand the domestic lumber industry to its natural market and protect and grow the jobs that are so essential to our workers and our communities,” said the Coalition’s legal chair Cameron Krauss in a prepared statement. Krauss is also senior VP of legal affairs of Seneca Sawmill in Eugene, Oregon.
Canadian producers have about 28% to 34% of the market in the U.S, according to the NLBMDA, which has made a renewal of the Softwood Lumber Agreement between the U.S. and Canada a legislative priority. In its 2017 National Policy Agenda, the NLBMDA opposes “excessive tariffs and other restrictions that decrease product availability and increase costs to U.S. consumers.”
In response to this week’s tariffs, the NLBMDA said it supports a new Softwood Lumber Agreement “that helps meet domestic demand for softwood lumber, does not put American lumber producers at a competitive disadvantage, unnecessarily restrict the availability of products, or increase the cost of housing to the detriment of prospective home buyers and consumers.”
While the impact of the price of lumber on the housing market is in doubt, so is the impact of the tariffs on the price of lumber. Markets have been adjusting in recent weeks in anticipation of increased duties. One account put prices as up 25% in the last eight weeks. Another pointed to increases of 30% to 40% over the same time a year ago.
In 2016, imports of softwood lumber from Canada were valued at an estimated $5.66 billion, according to Commerce Department figures.
“This is still a work in progress and nobody knows where it will end,” said Kodiak Building Partners Chairman Paul Hylbert. It’s likely, he guesses, that the hard line approach with Canada will lead to serious negotiations. In the meantime, “the biggest danger is for production builders and their dealer suppliers as they have contracted with homebuyers for ordered homes at a fixed price and will be hurt by this abrupt price movement.”
At buying group LBM Advantage, CEO Steve Sallah also expressed concern on behalf of the buying group’s dealer members for the potential run-up in prices. But the biggest concern for the dealers, he said, is the supply of wood. “We need the Canadian fiber to supply U.S. building,” he said. “And a tariff is seen as better than a quota, which could seal off supply at some random date in the future.”
Ken Dunham, executive director of the West Coast Lumber & Building Material Association, described the situation as complicated. One silver lining to the tariffs could be a revival of smaller saw mills – businesses that were rendered uncompetitive by low-priced foreign lumber.
At the world's largest home improvement retailer, there appears to be small concern over the matter. According to Home Depot's Director of Communications Stephen Holmes, the vast majority of the company's lumber is sourced domestically.
Several distributors and retailers declined to comment on the issue. One industry executive, who asked not to be identified, said that some lumber dealers might be too polite to say it, but higher prices of lumber could allow higher margins for the dealers.
“Time will tell whether [the tariffs are] good bad,” said the executive. “But I think that people need to keep in mind that the cost of lumber is just one of many factors in residential housing, and not the top cost item.”
Further complicating the issue is whether the Canadian government is in fact subsidizing softwood lumber to the letter of the law.
In a recent issue brief from the NLBMDA, the association pointed out that the Canadian government disputes the legality of tariffs. It’s defense rests on the idea that timber is provided to a wide range of industries, and is therefore ineligible under U.S. law for a countervailing subsidy. While this defense has all the making of a technicality, it has held up three times in international court, according to the NLBMDA background sheet.
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