Impact of tariffs on wood manufacturing industries is direct and may be long lasting By Bill Esler, WoodWorkingNetwork
1/28/19, 1:28 PM
In July 2018, the Trump administration proposed a 10 percent tariff on $200 billion worth of Chinese goods—an amount China could not match even if it wanted to (U.S. exports to China totaled $129.8 billion in 2017).
That proposal arrived on the heels of steep tariffs imposed on steel and aluminum imports from dozens of countries. And the July tariff proposal came days after a 25 percent tariff took effect on $34 billion worth of U.S. imports from China. The action effectively voided all trade agreements between China and the U.S., according to the Chinese government, and we reach the brink of an all-out trade war between the two largest trading partners.
President Trump has since announced further intentions to levy taxes on all imports from China ($505.5 billion in 2017) and the possibility of increasing the level of all the tariffs on Chinese goods to 25 percent - though he has put that on hold for 90 days (until April 1).
These threats have companies worldwide bracing for the impact on global supply chains, as some fear a trade war will lead to another global financial crisis. The U.S. is particularly vulnerable due to the inevitable retaliations its actions would engender.
The U.S.-imposed tariffs that are currently in effect target products central to China’s “Made in China 2025” plan to overtake the U.S. as the global leader in high-tech industries. While they have been criticized as anti-competitive and bad for business interests, both in the U.S. and globally, they have been praised for their promise to countervail China’s unfair trade practices, which include intellectual property theft, forced technology transfer, government-financed acquisition of foreign competitors, export tax rebates, and currency manipulation, among other things. It is hoped that the U.S. actions will mitigate its trade deficit with China, which stands at around $375 billion, and promote “Made in USA” products.
In November 2017, the Trump administration levied a 20.83 tariff on Canadian softwood imports (including pine, spruce, and fir), attributing the decision to claims by U.S. lumber producers that their Canadian competitors, due to Canadian government subsidies, possess an unfair pricing advantage that undermines competition. (Canada is currently appealing the tariffs through the World Trade Organization.)
Immediately after the tariff took effect, softwood lumber prices jumped, and they have remained high since. Longer-term anticipated results include:
• an estimated 7% increase in the cost of new home construction in the US (according to the National Association of Home Builders)
• surging profits for U.S. lumber producers, such as Georgia-Pacific
In May 2018, for example, the Random Lengths Framing Lumber Index hit the highest level since its inception in 1995, rising 30% from the previous year. Nevertheless, according to a May 2018 survey, 31 percent of single-family homebuilders reported a framing lumber shortage. Furthermore, as the additional costs are passed on, prospective home buyers in the US are expected to either postpone construction, opt for a smaller home, or buy an existing home instead of building, which will have an adverse effect on new housing construction.
But the effects transcend housing construction alone, with remodelers and manufacturers of flooring, cabinets, and related building and construction products purchased by both professionals and DIYers worried about the longer-term effects. For example, consumers may not be as willing to finance lumber-intensive home renovations given the higher costs.
There is no doubt that global trade relations remain very much in flux as a result of the escalating rhetoric on tariffs, and the impact is still uncertain for many industries. Some U.S. companies are already benefiting from recent actions, but others will be forced to raise prices, move production offshore, or – in some extreme cases – close up shop for good.