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.
The only mistake here is to regard this issue as a single dimensional deal.
1: I am not in favor of tariffs.
2: Canada has been dumping super cheap softwood over the past year or so.
3: Whatever price ramp is occurring right now may very well be influenced by tariffs
4: But there have been some pretty serious wildfires in Canada’s wood producing areas and that has affected the amounts they have been able to produce.
So I am not saying thing “X” is causing thing “Y”. There are generally multiple causes and this IMO is a case in point. Thus, when I read an article that says “X” is right now causing “Y” while ignoring “Z”, it undercuts the credibility of the article.
I have to work my ass off because H-1B have flooded the market with competition in IT. PS: all of the former green card holder who eventually become citizens also become Democrats.
Unfortunately this is true. Some things need to be left alone. Tariffs on items of necessity should be left alone or it is counter productive.
Look at what happened when Obama imposed the tariff on imported tires, now lower income people just trying to get to work almost have to take out a loan to buy a set of tires. They are now so expensive that folks are actually trading in their car for one with new tires rather than buy new ones for the car they have. The payments are the same $200 dollars a month and they saved the cost of a set of tires. And for some the cost of a set of tires is even more than what the car is worth.
Where is the incentive to do that? Canadian lumber is taxed, not cut off. The lumber industry was selling all the could produce before. Now they're selling all they can produce except for 20% more. Increasing their own production will drive prices down and cut their profits.
Let’s not forget the millions of acres of prime forest in the Northwest that is off limits due to the “endangered” spotted owl because the EPA claims that they have to have old growth forests to survive.
Yet many here advocate for even more tariffs.
Tariffs are taxes in another form.
Oh BS. Better to have a job than be on welfare driving on a new set of Khomos.
I'm fine with that.
Tariffs targeted to specific businesses and industries are a K Street dream come true.
We don’t have a ‘damaged’ trade relationship with the United States. We’ve always had a good relationship with the US and I’m sure we will work out any of these issues honourably from both sides. Including if we need to rework outdated NAFTA....
There's some dispute about whether Canada is really "dumping" lumber in the U.S. at all, but two things I know for sure:
1. The U.S. consistently loses to Canada when this issue is subject to rulings by international trade boards.
2. It's no coincidence that lumber imports from Canada grow considerably when the Canadian dollar weakens against the U.S. dollar.
Tariffs have two purposes, to raise revenue and to protect American industry. Income taxes OTOH are intrusive, destructive, mandatory and do nothing to protect anything.
Tell that to all the people who used to work in the US wood products industry, now without jobs, thanks to Canadian subsidies to their timber industry.
The canadians have been dumping lumber on the US market for a long time. Add to that the NFS closing off entire regions to logging in the NW, while not allowing any thinning for fire or pest control, and you have the price discrepancies that you see today.
Of course the canadians could have waited until our domestic producers were completely wiped out, then jacked the prices up through the roof, which apparently is the ideal outcome for all of the FRee traders around here.
And income tax rules "loopholes" aren't!??!!!
That’s a very good point. American businesses can be competitive if we just get the tax and regulatory burdens off their necks.
yes, I understand that but do you have Netflix?
Let Canada keep their lumber.
Buy American.
No, why do you ask? Is this a trap?
Not so far off the labor and Tariff issues of 1860.
“Protecting American industry” only makes prices higher and costs jobs.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.