President Trump's trade wars come into focus.
Wondering where the impetus for President Trump’s recent actions slapping tariffs on Canadian softwood lumber came from? A simple phrase helps to figure it out: cui bono — who benefits? The answer to that is fairly simple: the American lumber industry. Unsurprisingly, that is exactly who pushed these tariffs. Unfortunately, if you’re planning on buying a house, furniture, or paper, you will pay for this windfall for American lumber.
The origin of U.S.-Canadian lumber dispute goes back decades, but the recent tariff has its roots in a formal complaint by the American lumber industry that was filed in November. This complaint was leveled by the U.S. Lumber Coalition, an organization headquartered in the lumbering heartland of the United States: K Street in Washington, D.C. The Department of Commerce responded by leveling tariffs on Canadian lumber imports. These tariffs vary by firm, but they are on average about 20 percent.
American lumber companies responded with predictable glee. The spokesman for the U.S. Lumber Coalition promised that the tariffs would “add jobs, absolutely, guaranteed.” And the spokeswoman for Sierra Pacific, one of the largest American lumber producers, declared that her organization “continues to educate” the American government on the need for tariffs against Canadian lumber.
Less optimistic was a report by the National Association of Home Builders (NAHB) that analyzed the effects of the Department of Commerce’s tariffs. The report determined that the lumber tariffs would cause the price of softwood lumber to increase by 6.4 percent for U.S. consumers, resulting in the cost of an average single-family home increasing by $1,236. Some are suggesting that the cost of homes could increase as much as $3,000. Additionally, the report found that the tariffs would result in the loss of 8,421 jobs and $500 million in earnings for U.S. workers.
Some are suggesting that the cost of homes could increase as much as $3,000.
That these tariffs will have such a significant impact on the U.S. economy should hardly be a surprise. Canada exports $5.8 billion in lumber to the United States each year, which represents 31.5 percent of the U.S. market. Driving up prices in a large segment of the U.S. lumber market can hardly be expected to have a “minuscule to non-existent” effect on industries that require softwood lumber, as the U.S. Lumber Coalition’s spokesman disingenuously suggests.
The consequences of the Trump administration’s tariffs may not end here. Canada’s lumber industry largely depends on exports to the United States. For example, over 65 percent of softwood lumber from British Columbia, Canada’s largest lumber-producing province, goes to the United States. With elections in the province set to take place in May, political rhetoric is heating up in the region in response to the President’s actions. Retaliatory tariffs from America’s largest export market are hardly out of the question.
Even the legal case of these lumber companies is questionable at best. A 2015 analysis by the Congressional Research Service found that evidence of “unfair” trade was largely inconclusive.
Moreover, President Trump’s actions may be just the beginning. Though he recently decided not to withdraw the United States from NAFTA (for now), he is certainly still signaling his intention to take a hardline position during impending negotiations over the trade deal. Economists largely agree that NAFTA has been a net positive for the U.S. economy, having increased U.S. GDP by roughly several billion dollars annually and trade in the region by about 280 percent since its implementation in 1993. Reducing trade opportunities for Americans in these negotiations will harm domestic consumers and businesses alike.
President Trump has handed powerful lumber businesses a subsidy at the expense of American consumers. When it comes to trade, the president should listen to the economic consensus that free trade benefits Americans, and not the complaints of special interests seeking to make easy money.
Photo credit: Arnaud DG, Flickr, Creative Commons