Skip to comments.WSJ: Trade War - U.S. tariffs on Canadian lumber hurt American home buyers.
Posted on 08/15/2005 5:49:58 AM PDT by OESY
Homeowners and home buyers scored a rare... victory... when a three-person arbitration panel ruled unanimously that U.S. tariffs against imported Canadian softwood lumber violate the North American Free Trade Agreement (Nafta).... [R]escinding the tariffs will reduce the average construction cost of a new home by about $1,000 and make about 300,000 more moderate-income Americans eligible for mortgages.
Instead of hailing the move as a welcome step toward more affordable housing, the Bush administration insists that it won't lift the tariffs, which can reach as high as 27%. It further plans to engage in more stalling tactics by appealing the decision to the World Trade Organization. The Office of the U.S. Trade Representative declared that the ruling "will have no impact on antidumping and countervailing duty orders."
It's too bad the White House doesn't know an opportunity when it sees one. The trade panel's pro-consumer ruling allows the administration a graceful exit from one of its more bone-headed economic policy decisions: the imposition of the lumber tariffs in 2002....
It also sends a lousy message to Capitol Hill. Just last month the White House muscled the Central American Free Trade Agreement through Congress. To do so, it had to strong-arm many Midwestern and Southern House Republicans to vote against their own parochial textile, manufacturing or agricultural interests....
Making matters worse is that the administration's proposed remedy for the lumber dispute is a complete economic loser for Americans. The U.S. is demanding that Ottawa impose a tax on the softwood lumber it exports to the U.S. so that prices here rise. This whole inane scheme may very well lead to a net reduction in employment in the U.S. because for every lumber and sawmill job there are about 25 Americans working in industries that depend on low-priced Canadian lumber as an input....
(Excerpt) Read more at online.wsj.com ...
Instead of hailing the move as a welcome step toward more affordable housing, the Bush administration insists that it won't lift the tariffs, which can reach as high as 27%.  The Office of the U.S. Trade Representative declared that the ruling "will have no impact on antidumping and countervailing duty orders."
How can this be? I thought these arbitration panels have the authority to override U.S. law and we are powerless to stop them.
If they want the price of lumber to go down, simply allow more logging in the US instead of caving into the idiotic greenies.
"This whole inane scheme may very well lead to a net reduction in employment in the U.S. because for every lumber and sawmill job there are about 25 Americans working in industries that depend on low-priced Canadian lumber as an input...."
Let me get this straight. The WSJ endorses a guestworker program for illegal aliens that they say will not effect American workers. Now they are fretting that Amercian workers will be affected by the Administration's "boneheaded response".
Somebody clear this up for me? Or am I reading this incorrectly?
I understand the $1,000 savings part. I don't understand how a mere $1000 stops anyone, let alone 300,000 people, from buying a home.
If a person has a 30 year mortgage at 6% interest, the added $1000 to his mortgage would raise his payment approximately $6.00 a month. $6 sure isn't a lot to prevent somone from buying a home.
I read that too and thought it was a misprint (as in, it should read $10,000 or more)...
An builders/bankers out there? Anyone?
Yup. Trade policy should not be consumer-based.
The average 3 bedroom home uses around 10,000 board feet (10 MBF)of lumber. Using an average price of $400.00/MBF, total lumber cost is $4,000.00. Reduce this by 27% (i.e eliminate the tariff) and one would save $1,080.00
I read years ago that the building permit costs more then the lumber does.
Exactly. I've used this specific trade dispute as a perfect example of how the U.S. will always get its way regardless of what kind of decision these "trade organizations" make on matters of international trade. If the U.S. wants to ignore NAFTA, GATT, the WTO, etc. -- we are going to ignore them.
In response to the original softwood lumber tariff that was imposed back in 2001 (it was 19% at the time), Canadian lumber mills went through a process of enhancing their efficiency and making deals with their unions -- to help offset the higher cost of their lumber. Lo and behold, the end result was that "real" cost of Canadian lumber was reduced by roughly 19%. The U.S. raised the tariff to 27% because the flow of Canadian lumber didn't slow down very much under the original 19%.
With the tariff on Canadian lumber at 27%, U.S. lumber producers can reasonably compete with their counterparts north of the border -- but only for lumber sales right here in the U.S.
The bigger story is that the productivity improvements and cost reductions at the Canadian mills have made the U.S. utterly incapable of competing for lumber sales in any place where the U.S. tariff doesn't apply -- i.e., the rest of the freakin' world. Since 2001, Canadian lumber exports to their trading partners around the Pacific Rim have reached record levels, while U.S. exports have declined considerably. The shut-downs at U.S. mills have continued unabated during that time, which means that the U.S. has derived three "benefits" from the softwood lumber tariff:
1. Higher lumber prices.
2. Lost jobs in the lumber industry (particularly in Washington and Oregon).
3. Potential loss of billions of dollars in tariff revenue (if the trade dispute is eventually resolved in Canada's favor.
So in addition to losing the jobs and paying higher prices, we may even have to pay Canada back all of the tariff revenue that has been raised since 2001 anyway!
That's right, why help 300,000,000 consumers when you can help a few thousand producers while screwing 300,000,000 consumers?
Your government at work. I await the next "obvious" solution. Lumber subsidies.
Is it the role of the federal government to protect the abilities of the consumers to buy cheap crap, or to ensure (at least for critical industries) that the US - whom the US federal government supports - maintains the ability to manufacture said critical crap, even if it means consumers have to pay a little more?
I would contend that tariffs to protect critical industries (and we can argue as to whether or not timber is critical), combined with the elimination of prohibitive federal regulations and taxes, would allow us to have our, um, trees, and eat them too. The elimination of the federal burdens is key: must create and promote a pro-business environment in the US; then imports and tariffs are non-issues anyway.
Is the federal government's goal in trade policy to make it possible for every consumer to buy the cheapest possible crap
And who decides that the foreign goods are cheap crap that we should be protected from? I guess Americans are too stupid to know that they shouldn't buy this cheap crap? And the Feds therefore have to protect us from cheap crap?
I would contend that tariffs to protect critical industries
If we only protected critical industries we could eliminate about 97% of all current tariffs, including ones on lumber.
Not to protect American lumber jobs but the American lumber industry. I personally am not concerned about the jobs; a healthy industry (and remember, the federal burden MUST be relieved) will create the jobs it needs. I would NEVER advocate a federal jobs creation/protection scam, er, plan.
My use of the word crap was a mistake; should have used the word goods, and is not a reflection on the quality of foerign goods. Is it the government's responsibility to ensure consumers can buy cheap goods, or is it the government's responsibility to ensure manufacturers can create enough to meet demand?
If we only protected critical industries we could eliminate about 97% of all current tariffs, including ones on lumber.
Cool. I'm not concerned with barbie dolls and staple pullers anyway. BTW, do you have a source for the 97% number?
I don't know that either is the government's responsibility. I just know that when the government attempts to help, they often end up causing greater harm.
BTW, do you have a source for the 97% number?
Pulled it out of the air. Which industries do you consider critical?
I think we probably agree, too many regulations make too many American industries uncompetitive.
Undeniably true. But I have a conflict on critical industries (let's say, steel, which I think we can both agree is critical). We import HUGE amounts of our steel from South Korea, Japan and even China. If we were to get into a war with North Korea - not an impossible scenario - China, being N Korea's ally, might decide not to sell to us, and S Korea and Japan may decide not to sell because they do not want to get caught in the middle. We would have big trouble; now, we would undoubtedly re-mobilize our steel industry, but at what cost to American lives? I would endorse provisions to protect and promote the American steel industry (again, not the jobs; hell, if they automate it all and create NO jobs, it would be fine with me) so that we don't get caught in a jam such as I've described. And I need to be a broken record on fed regulations: no protection or creation is adequate without eliminating the fed regulations.
It also occurs to me as I write this, that being dependent on foreign countries for critical goods may tie our hands diplomatically and/or militarily. Would we be less willing to "pull the trigger" on military action if we saw that such action would create shortfalls of critical goods? It's an extra bit of leverage we don't need to be giving our enemies.
When you say critical are you just talking about defense needs?
Would we be less willing to "pull the trigger" on military action if we saw that such action would create shortfalls of critical goods?
Well, defense needs are certainly critical, but not the only ones. We could argue on timber being critical, though I don't see it as being critical to defense, although they are always building things at military installations.
Americans do not care much if Canada wants to sell its lumber to China.
Also, when BC uses the term "efficient" for their lumber industry, keep in mind it is in the Soviet sense of the word.
BC is mowing down its forests right now due to 25 years of pine beetle infestations that have gone unchecked.
Lumber prices are falling now as this huge amount of stock hits the market with an effect that will last a few years.
As for free trade someone in Washington noticed that the trucks lined up at the border on Sept. 12, 2001 were mostly headed south.
Also, how many times has The Globe and Mail recycled this headline...."Canada Wins in Lumber Dispute" in the last 20 years?
I'd also mention that I don't think of Canadian lumber producers in terms of just British Columbia. Some of the largest pulp and paper mills in Canada are actually in Alberta, not BC -- and these mills are busier than ever because it's cheaper to do business in Alberta than in BC.
Ottawa sold out the forest industry (and the west...again) when they signed.
Ironically, lumber was always duty free before the free trade agreement.
But IMO, the free trade agreement was still a very good agreement for Canada.
And Ottawa has made the best use they can of the softwood problem. Since then it has been used as an election tool for the Liberals to bad mouth Americans with.
IMO Washington is not going to back down here either as it is one of the few things left to them with which to influence Ottawa.
"Sure, we'll sell you all the oil you need down there -- but for each barrel of oil you have to buy a load of (duty-free) lumber."
No mention of raw logs...just cut lumber...hmmm
And I would expect a hearty response.
I find it hard to believe an Albertan wants to link the two issues diplomatically though, as it will cost Alberta the most.
IMO Ottawa will not interfere in exports to the USA in any other of its life bread industrys, especially energy, to appease the softwood lumber industry.
Look for soft ball tactics, mostly aimed at farmers.
They charge what is known as a stump fee of around $200.00 per 1000 board feet to the Timber companies that do the logging (In the USA the timber companies get charged a fee by our Government of around $700.00 per 1000 board feet), this does not include all the regulations our Government imposes on timber companies here(Replants, emissions etc).
So wouldn't the best thing to do be to lower the Stump Fee here in the US to $200.00 and just lessen the Feds requirements to timber companies? Or do you just want to give the Canadians the upper hand in this without regard for our country?
Or do you just want to give the Canadians the upper hand in this without regard for our country?
That's a very good question. One thing to remember here is that on a "level playing field" the Canadians will always have the upper hand in this industry simply because there are a lot more trees up there than down here in the U.S.