As a candidate, President Donald Trump made trade policy a major part of his campaign and vowed to make trade agreements that were more favorable to the United States. Since taking office, Trump has withdrawn the U.S. from the Trans-Pacific Partnership and sought to renegotiate the North American Free Trade Agreement (NAFTA).
The lumber and building material industry is one of many industries that has been affected over the past year by the administration’s trade actions. In December, the U.S. International Trade Commission upheld duties on Canadian softwood lumber imports. Earlier this year, the White House announced tariffs on steel and aluminum imported from some countries.
President Trump is confident that duties and tariffs will give the administration leverage to craft more favorable trade deals. However, the actions have created disruption for manufacturers, distributors, and retailers seeking predictable pricing and minimal supply chain disruptions. Recent trade actions have raised concerns that a broader trade war with countries such as China could harm the U.S. economy.
The decision last year by the ITC affirmed combined Antidumping Duties (AD) and Countervailing Duties (CVD) of 20% for most Canadian lumber producers importing to the U.S. For the five companies (Canfor, J.D. Irving, Resolute, Tolko, and West Fraser) that were directly involved in the investigation, the rates vary between 9% and 23%. Duties do not apply to softwood lumber harvested in the Atlantic Provinces of Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.
Canada has responded on two fronts in recent months. First, it requested a binational panel review of the AD/CVD determination as provided under NAFTA. Second, at the Canadian government’s request, the World Trade Organization has created dispute settlement panels to review the softwood lumber duties.
Congress has weighed in regarding the softwood lumber dispute. In June, more than 170 members of the House of Representatives sent a letter to Commerce Secretary Wilbur Ross and Ambassador Robert Lighthizer, the U.S. Trade Representative, asking that the U.S. return to the negotiating table with Canada and redouble efforts to reach a new softwood lumber agreement. NLBMDA staff and lumber dealers helped build support for the letter.
Increased congressional interest in the dispute comes at a time of record high lumber prices. Since the Department of Commerce investigation started in December 2016, domestic softwood lumber prices have increased 30% according to the Producer Price Index (PPI) published by the U.S. Bureau of Labor Statistics. Additionally, oriented strand board prices have increased 32% over the same period according to the PPI.
Canadian softwood lumber duties are not the only reason prices have increased. Record wildifires last year from California to British Columbia have been a major factor. There has also been a record-breaking spruce beetle infestation in British Columbia. A confluence of events have pushed prices higher.
But there is good reason to be cautious about a quick resolution. In previous iterations of the softwood lumber dispute, it has taken several years after the imposition of duties for the two countries to reach a new agreement.
A new trade issue affecting the LBM industry is the recent imposition of tariffs on steel and aluminum. In March, 25% tariffs on steel and 10% tariffs on aluminum were assessed on products imported from China, Russia, Japan, and Turkey. The threat of those tariffs caused Argentina, Australia, Brazil, and South Korea to reach agreements restraining their metal shipments.
More recently, in late May, steel and aluminum tariffs were also imposed on imports from Canada, European Union member countries, and Mexico. The affected countries have responded by placing retaliatory tariffs on American goods.
NLBMDA took a position earlier this year opposing the steel tariffs as it increases construction costs, decreases housing affordability, and can cause an unnecessary trade war that harms consumers.
It is unclear if the administration’s tough approach on trade is having the desired effect. Despite pushing hard to renegotiate NAFTA, the three countries have not reached a new deal and the deadline has passed for Congress to approve a renegotiated agreement this year. That means any NAFTA deal will be approved in 2019 at the earliest.
President Trump has said he will attempt to negotiate separate bilateral trade pacts with Canada and Mexico following failed efforts to renegotiate NAFTA. Canada has openly rejected the idea and Mexico seems cool to the idea as well.
NLBMDA is monitoring the latest trade policy developments for their effect on the LBM industry, and maintains that fair trade policies should be followed, to ensure a reasonably level playing field for domestic and foreign manufacturers, but opposes excessive tariffs and other restrictions that decrease product availability.
