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.
http://money.cnn.com/2017/01/03/news/economy/obama-china-tire-tariff/index.html
http://nahbnow.com/2017/06/lumber-tariffs-threaten-thousands-of-u-s-jobs-raise-housing-costs/
Why, as an American, should I care if a Chinese factory lays of some of it's slave staff because a US import tariff decreased demand for its product? I don't give a f***. Actually this makes me happy.
The fact that you cannot see the difference says a lot about YOU.
May I please share what happened in the real world with the tire tariff example?
American tires were 30% more than imported tires but still affordable for most. But the steel worker’s union cried foul and lobbied Obama to have a tariff imposed on imported tires to even up the prices and make them close to the same.
This lasted about one month before the American companies took advantage of this opportunity to raised their prices back to the 30% difference again. Then the union gave themselves another raise.
In the meantime the price bar has now been raised to the point that a set of tires is so expensive for those just trying to get by that it is the only thing between being able to AFFORD a job or not.
When was the last time you priced a set of tires? There really are a high percentage of working incomes who cannot just go out and buy a set. Many actually have to take out a title loan against their vehicle to buy a set.
Like I say, many are now also trading in their car for one with news tires. They are forced to trade a $200 payment for a $200 payment because they cannot afford the extra to buy a set. Tires should not be this expensive, it is very counter productive to those trying to work and stay off of welfare.
My point is some certain “necessities” should be not imposed because in the end it can actually do more indirect harm than good to the overall economy.
Back in those days the imports were more pathetically constructed than the domestic cars.
I think your right in some cases, but not ALL.
UBER LIBERAL government employees in Canada, and I do mean UBER, control their industry from stem to stern including what is called “stumpage” fees.
If you think these UBER Liberal employees of Canadian Government aren’t setting all forest product fees to their advantage, and to the disadvantage of American Forrester’s, then I’ve got a bridge to sell you.
It costs American jobs. The lumber tariffs, for example, make lumber more expensive, which reduces construction, which costs construction workers jobs.
Tariffs may be useful foreign policy (to harm the economy of a hostile state), but they’re horrible economic policy.
This is great. This will actually help greatly in the overall scope of things.
Ok, you played the old switcheroo. You said the tariff will cost jobs in that production industry. Now you are saying the lumberjack is fine but the carpenter is not. You are all over the board and you see a boogyman everywhere you look.
The cost of lumber may inflate the price of a house by 1%. It my be slightly inflationary. It will not affect the demand for new houses.
Wildfires are also decreasing the supply.
No, that is not what I said.
Tariffs are taxes on goods. When you put a tax on the materials needed to produce goods, you raise the cost of producing those goods. That’s true of housing, cars, and any other production.
One of the primary rules of economics is that when you tax something, you get less of it. So when you tax lumber or any other commodity, you get less of that commodity. That means there is less material for all the uses to which we put that commodity, such as construction. That means lower sales, which means fewer jobs in that industry, and fewer jobs serving that industry.
We reject protection of industries domestically. But we’re supposed to embrace it internationally?
Bringing in less lumber also reduces dock jobs.
And, of course, other countries can be expected to retaliate, which inflicts further damage on our economy.
That’s why I said that tariffs may be effective as foreign policy, but they’re bad economic policy.
Now that is a canned response.
Remember the’big three’ and the others?
there was competition.
You are muddying the water with your ‘union shop steward’ statement.
That is another issue.
There is another factor in this. Local sales tax and federal income tax revenues are also reduced greatly at each local level. So in the end a federal tariff can greatly harm your local economy when less is sold. The feds are getting these monies instead of the locals.
As the price of lumber goes up, there are more European imports coming into the east coast ports(Baltimore, Charleston, Savannah, New Orleans and Houston). My company brings containers of lumber from Europe into all of these ports. other companies bring in Radiata Pine from Brazil, Chile and New Zealand.
I can not think of any lumber from Canada that is brought into the US on a ship. It is all shipped via railcar, flatbed truck and enclosed vans.
It is more a function of the exchange rate between the US dollar and the foreign currency.
I don't think you understand what the word "retaliate" means.
Lumber, and most trade, between Canada an the US is by truck or train. No dock workers are harmed.
The tariff causes inflation, a very small amount which makes US products more competitive and increase the profit margin which creates the incentive more domestic production lowering the price. It feeds on itself. Plus lumberjacks that are working buy houses, unemployed ones not so much too.
Yes, of course we are supposed to put American citizen needs first. What are you, some kind of traitor?
Here is the preamble to the tariff Act of 1789. Read it, please. It was the first major piece of legislation ever passed by congress.
"Whereas it is necessary for that support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid on goods, wares and merchandise:"[1]
What the article fails to mention is that we had a duty/tariff agreement with Canada for ten years that expired in October of 2015. The US imposed a preliminary duty of an average of 20% this year. There was also imposed a preliminary antidumping tariff of 10%.
There was a period of over one year that the Canadians shipped duty free into the US. That plus a favorable exchange rate due primarily to the price of crude oil made the best return to the Canadian sawmill to ship their product to the US. Therefore, their shipments increased during that “duty free” period.
When the price of oil(Canada is a net exporter of oil and it greatly effects their exchange rate) was high and the Canadian dollar was higher in relation to the US dollar their exports to the US were lower.
There has also been an increase in demand for lumber from almost all US consumers. For example, some of the wood truss manufactures I personally sell are having their best year ever currently. If they are not having their best year, it is the best demand they have had in 10-20 years. However, all demand is local. The market may be booming in Utah, but may only be OK in NY state.
This combination of factors plus regional demand increase has caused Douglas Fir dimension to be trading at all time record highs. However, Southern Yellow Pine is actually down from the prices it reached last year. The fires just recently in interior British Colombia have also caused a shot tem spike. However, that has now run its course.
All we need now is a hurricane and lumber, plywood and osb will really go nuts.
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