Posted on 08/02/2017 9:34:37 AM PDT by Eric Pode of Croydon
Back in April, President Trump slapped tariffs of around 20 percent on the Canadian softwood lumber industry. At the time, I wrote that it would cause lumber prices to rise, citing estimates that prices could increase by around 6.4 percent. Well, it turns out I was wrong, and lumber prices have not risen by around 6 or 7 percent. Instead, they’ve risen by much more since the spring—as much as 25 percent.
One contributing factor for this spike is not hard to see. Tariffs are taxes on the consumer, restricting the consumer’s options when purchasing a product. The levies make imported lumber more expensive, thus making American lumber a more attractive prospect for reasons not necessarily related to its quality or ease of procurement. It is not surprising that politically well-connected American companies, such as the U.S. Lumber Coalition, were strongly supportive of the import taxes. American lumber companies benefit, but at the expense of American lumber consumers that use the product as an input.
This price spike is occurring as the housing market is suffering. Materials needed to build new homes are becoming more expensive, and as a result, the production costs for homebuilders are increasing. This is resulting in a mismatch between sellers and buyers of homes: there is plenty of demand for new, inexpensive homes, but homebuilders cannot make a profit off homes at the prices that buyers can afford. Buyers want cheap homes, and, thanks in part to high lumber tariffs, homebuilders are less able to provide them.
The result of this has been plummeting confidence among homebuilders. The National Association of Home Builders’ confidence index has fallen to an eight-month low as home builders face higher supply costs. While builder confidence jumped following the election as President Trump promised lower taxes on corporations and reductions in regulations surrounding homebuilding, compliance with which makes up as much as a quarter of the cost of building a home. While builder confidence still remains high when compared to, for example, the rock-bottom lows of 2008, this recent drop highlights the administration’s habit of balancing policies that help businesses and consumers with trade policies that shoot American consumers in the foot.
As my colleague Brandon Arnold rightly pointed out at the time the tariffs were introduced, there are reasons for taxpayers to be concerned even if they do not plan to buy a home in the near future. President Trump has been teasing a plan to use $200 billion of taxpayer dollars to leverage $1 trillion in infrastructure investment. Yet with rising lumber prices causing construction costs to increase significantly, any infrastructure plan will get less bang for its buck. So will we see less “bang” or more “buck”? In other words, will Congress fund fewer projects for the same amount of money, or will it fund the same number of projects and spend more money? Either way, taxpayers lose.
The lesson here is not limited to lumber. Tariffs are, by their very nature, financial costs added to the myriad burdens faced by American businesses and consumers at large. As economists continue to overwhelmingly agree, international trade provides a net benefit to both countries that engage in it. Meanwhile, tariffs benefit small, politically favored industries at the expense of American businesses and consumers writ large. The country should seek to repair its damaged trade relationship with Canada and focus on lowering trade barriers, not erecting them.
“I’ve noticed the price of Oreo’s have fallen since moving production to Mexico. /sarcasm”
And builders/contractors that use Illegals on the job site sell the houses for less too!
This may be true but it is a dynamic situation. If a product is made both here and shipped in across the border then demand is a moving target. If you cut off the foreign supply the demand will go down and the price will go up. But the demand for the domestic produced good goes up as well as the price goes up. THIS IS A GOOD THING. Domestic competition will kick in and domestic production will ramp up lowering the price and increasing the demand. More shifts will be added, new factories built and DOMESTIC suppliers will make up the difference. Why? Greed.
A color tv in 1970 cost $700.
In today’s money, that is $4320.
I assume you would happily pay that $4320 today, correct?
One of the main reasons West Fraser, Canfor, Interfor have all bought Southern Yellow Pine sawmills is because all the economists show that SYP is the least expensive timber resource in the world(not just North America). SYP will continue to gain market share over the next twenty years. SPF lumber (spruce lodgepole pine alpine fir) from western Canada is losing market share because the devastation by the western pine beetle over the last ten years. Those mills saw that if they wanted to stay in the lumber business in the future they had to buy SYP mills.
I think that is beginning to happen. I read an article yesterday that said permits @re being issued in Northern Arizona. Here’s hoping our U.S. lumber industry can come back.
The jobs lost in the logging and plywood/sawmill business were not lost due to Canadian lumber. The U.S. Government banned almost all logging the Olympic Peninsula due to the Spotted owl. At the same time they forbade the practice of clear cut logging in the National Forests and reduced the sale of National Forest Timber. In the 1980s the Forest Service sold about 10 billion board feet of timber for logging, per year. In 2015 that figure had dropped to 2.9 billion board feet of timber. It was the U.S. Government that wiped out those thousands of timber industry jobs, not Canadian lumber.
There is maybe 1 man-hour goes into making a modern flat screen TV. A $400.00 flat screen has maybe $40.00 of labor. Even made in the USA there is only so much labor in the product. So a made in the USA TV would only be marginally more expensive. Maybe 5% more than the 3rd slave produced model. I would gladly pay that to have a vibrant domestic consumer electronics industry.
Many of those jobs in the timber industry would have been lost anyway. I do not support what the Forest Service did. However, it forced many inefficient producers to modernize or close. Thirty years ago a big sawmill would have 60-80 people working there per shift. Now, it is 25-30. Same in the planer mill, etc. The mills are now bigger, run 2-3 shifts and are all automated. They all copied how the big mills in Sweden and Germany run(24/7). It is more efficient to make more lumber at one location(lower cost off production per board foot produced).
The modern osb plants have about 20 people working there. Most of them are in a control room or driving fork lifts loading railcars and trucks. Everything is automated.
I live in the heart of timber products country, the Oregon Cascades. My family has been in the timber business since 1934. I know all about the causes, problems, and potential solutions.
Cheap Canadian lumber is one of the problems. Actually, clear cutting is a big part of the problems. It only began in 1939, when the U.S. was ramping up for war, and was supposed to stop after the national emergency ended.
If the nation had gone back to selective logging in 1946, many of the current problems would never have come about.
They were clear cut logging since Wirkkala invented the high lead system in 1917. My grandfather worked for Polson Brothers in the Olympic Peninsula during the 20s. Has dozens of photos of clear cut logging from that era.
And when American lumber builds up stockpiles they can’t sell, they will eventually have to drop the price....at least to the level that the tariffs should have raised the prices to begin with. This happens with oil all the time. They tried to price speculate and now they are getting burned!
Really? Where are all these sub $100-150 internal combustion engines coming from then?
There’s a huge retail savings on offshoring, most of it is probably regulatory and legal though...
What are you talking about? Does the night nurse know you have internet access?
Don’t forget, the Japanese stole the 3D forming technology to make their cars comparable or better than American ones in the late 70s early 80s. They had to pay out over that but the suit loss was CODB for that gain.
Back then, we didn’t have income taxes of FICA or any of the junk we have today. Tariffs were the main source of revenue, along with assessments on the states.
Things are different now. Tariffs raise prices, kill jobs here and abroad, and damage our economy.
If the cost to manufacture the item goes up (as any kind of tax, including a tariff, causes), then there is less of that item to purchase. That is not a good thing.
Tariffs are not going to increase demand for products. The record is the opposite.
Of course they can retaliate. They can raise their tariffs, impose new barriers, and make it even more difficult and expensive to import our goods into their countries. There are numerous ways they can retaliate. And retaliate they will.
In other commodities from other countries, dockworkers are harmed by tariffs.
You stated offshoring doesn’t lower retail prices. Small engines are just about a disposable commodity due to offshoring. Every single maker of old school cast iron awesomeness is either bought and moved over there or the manufacturing is. Those new Predator brand engines flooding the market are an American optimized Honda design made in, IIRC, in Taiwan.
I’d love for those things to still be made here but someone has to weed out about 20,000 pages of ADA, EPA, and OSHA bullshit to do it cost effectively. And I’m not talking about VOC saturated water and spike covered floors either, but all the stuff like 1/2 in toilet to wall violations and use in leu of disposal etc...
You want to help American companies? Cut the corporate tax rate and the capital gains tax. Deregulate. Get our government out of the way.
But don’t make doing business even more expensive. Don’t impose more taxes and barriers on American goods and services.
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