The Forest for the Trees:

By Ben Olson
Reader Staff

The Trump administration announced Monday it would enact up to 24 percent tariffs on lumber shipped into the United States. The tariffs come after President Trump’s continued election campaign promises to use them on imports from Mexico, China and Canada.

The tariffs were announced Monday evening after trade talks on dairy products fell through, said Commerce Secretary Wilbur Ross.

Milled lumber sits at a North Idaho mill awaiting shipment. Courtesy photo.

“It has been a bad week for U.S.-Canada trade relations,” said Ross in a prepared statement.

The imposed tariffs were no surprise for local lumber companies, who have been following this situation closely for decades.

“We’ve been deeply ingrained in this issue,” said an executive at a local timber company that asked not to be identified. “It’s been going on for 20 years. We’ve been involved with it on a daily basis since it expired a year and a half ago.”

The executive said the tariff actually turned out to be lower than originally expected.

“The forecasted tariff was 30 percent and it came in on average at 20 percent,” said the executive. “This was nothing that the industry wasn’t anticipating. Anything that potentially levels the playing field between the U.S. and Canada is beneficial to U.S. producers.”

Adam Hazelwood, who works in North American Sales for San Industries – a lumber exporter in British Columbia – has a different point of view.

“It’s all pretty fresh right now for sure,” said Hazelwood. “We’re trying to stay loyal with some of the orders that we have on the books right now. We’re going to be reassessing, and taking the next few weeks to slow things down and not quote anything. Everything is still up in the air.”

Hazelwood said the tax isn’t the only tariff Canadian lumber could be hit with.

“The 20 percent is in place, so right there our lumber prices go up 20 percent,” said Hazelwood. “But I’m still trying to get a hold of this anti-dumping thing, which is another 15 percent. That could mean an added tariff of 35 percent.”

The anti-dumping duty is a protectionist tariff that the US imposes on foreign imports that it believes are priced below fair market value. Dumping is a process where a company exports its product at a price lower than the price it charges in its home market. According to the U.S. Lumber Coalition, a preliminary anti-dumping ruling is scheduled for June 23, 2017.

“I don’t get it,” said Hazelwood. “I get more money to sell our products in the U.S. than in Canada. That’s not dumping.”

Hazelwood estimates his growing company exports approximately 20 percent if its product to the U.S. – almost all of it cedar.

“We’ve just aggressively gone after the U.S. market, so this is bad timing for us,” said Hazelwood, who said his company just bought a mill on Vancouver Island and has been bidding timber sales. Now these plans might be put on hold.

Back in the US, the regional timber company executive isn’t sure if the imposed tariff will have an impact on increased U.S. timber production: “It might assist in economics of the timber industry in North Idaho. I don’t know if it’s going to alter production volumes … it does help with the economics of the baseline on pricing.”

Lumber imports to the U.S. are split into thirds;  one-third coming from Canada, one-third coming from the south, and a final third produced in the Pacific Northwest.

“If prices sustain at a higher level, there is a possibility of increased lumber production out of all U.S. lumber operations,” said the executive. “If there is less Canadian lumber to fill the U.S. needs, that slack has to be picked up by domestic production or European imports.”

But Hazelwood believes the tariff may actually hurt certain U.S. lumber buyers; namely new home builders and those who require cedar.

“It’s all dealing with cedar,” he said. “The cedar is all coming out of British Columbia. I guess we’re just worried about if the consumers have to pay an extra 25-35 percent for cedar, when do they start looking for alternatives to the products?”

Hazelwood said he has several U.S. customers who are opposed to this tariff because it will drive the price of cedar up dramatically. The cedar that is selling on the market comes primarily from old growth forests, most of which are located in Canada. Cedar has a high demand because of its use with fences, building and because it naturally resists decay.

“A lot of my U.S. customers are opposed to this,” he said. “They buy all their cedar in Canada. Three customers actually told me they wrote letters to the government to exempt cedar. This is pretty much where all the supply is coming from.”

The National Association of Home Builders believe the tax will hit new home builders more than any, estimating new home prices will increase by 6 percent.

“For builders, it’ll increase the cost of construction by about $3,000 on the average home, which unfortunately will be passed onto consumers,” said Jerry Hower, CEO of the organization.

The group argues that higher lumber prices will slow down construction activity, eventually costing the U.S. around 8,000 jobs and $500 billion in lost wages.

The lumber dispute between the U.S. and Canada isn’t new by any means. It is a contentious battle that reaches back decades. In the 1980s, U.S. lumber companies began alleging that Canadian government had been unfairly subsidizing lumber.

The U.S. Lumber Coalition released a statement Monday asserting that the imposed tariff proves that Canadian lumber companies have been subsidized by their government with the intent to harm U.S. manufacturers and workers.

Fifteen years ago, the U.S. imposed a 30 percent tariff on Canadian imported softwood lumber, a move Canadian firms say cost their industry 30,000 jobs. Canada denies the allegations of subsidizing.

In 2004, the World Trade Organization sided with Canada and two years later the neighboring countries came to a temporary agreement. This agreement expired last October, prompting lumber buyers on both sides of the border to expect changes.

“This timeline was set previously,” the executive said. “It was already in place, regardless of if it was Trump or Clinton in the White House.”

With President Trump indicating he’s ready to begin negotiating a change to NAFTA, the tariff on Canadian lumber could be the first shot in a long and costly trade war with one of the most staunch allies of the U.S.