In the latest episode of “Trump vs. Trudeau,” Canada’s softwood lumber industry has been slapped with a 20 percent tariff on all exports to the U.S. That basically means Canadian lumber is going to cost American importers roughly 20 percent more than it already does, substantially reducing demand for the product altogether.
Canada and America have been bickering over lumber for more than three decades now. American lumber producers feel that they are being subject to an uneven playing field because they have to spend a substantial amount of capital (or a higher stumpage price) to acquire private land to procure timber. In Canada, lumber producers extract their timber from government land, often given to them at subsidized rates.
Because it costs Canadian lumber companies less than their American counterparts to produce lumber, they are able to price their product below the market rate, somewhat monopolizing lumber sales. Indeed, approximately 60 percent of Canada’s softwood lumber exports, or $5.66 billion, goes to the American construction industry. Canada sells almost $9 billion worth of softwood lumber all over the world, but the U.S. remains our primary client.
This trade dispute is complicated, so we’ve tried to make it clearer by breaking down who exactly will gain and lose from this new tax.
American lumber companies
They’ve been irritated at Canada since 1982, and are anxious to outsell Canadian lumber producers. This tax is exactly what the U.S. Lumber Coalition, a lobbying group made up of Big Lumber, has been campaigning for since its founding in 1985. If Canadian lumber becomes too expensive, demand will likely shift in favour of American softwood lumber.
British Columbia Premier Christy Clark has called the American lumber industry greedy, accusing them of raising the price of lumber sheerly to make more money. “It’s that top one percent in the United States that wants to line their pockets at the expense of the middle class.”
There’s a slight possibility that Canadian consumers will emerge as the winner in this spat. In order to remain competitive in the U.S. market with this new tariff, Canadian softwood lumber producers will have to lower their prices. That means Canadian lumber will now cost less to Canadian lumber buyers. What is softwood lumber primarily used for? Building houses. If the overall cost of construction material goes down, that could very well translate into lower home prices.
Chy-nah a.k.a. China
If Canadian lumber producers are forced to lower prices to maintain demand of their product, any importer of Canadian softwood lumber will benefit from this tax. China is a huge, yet untapped market, in the midst of a construction boom. They would indeed, welcome cheap Canadian softwood lumber.
In a press conference this afternoon, the Federal Minister of Natural Resources, Jim Carr did not rule out the possibility of aggressively marketing Canadian softwood lumber in China. “The Canada-China trade relationship has grown exponentially,” Carr said. “Right now, our biggest trade partner is the U.S., but we want to expand our export market, so we want to open up to the Asian market.”
The U.S. Government
U.S. Commerce Secretary Wilbur Ross has pegged the revenue from this tariff at $1 billion. Enough said.
Canadian softwood lumber companies
This is a given. The tax is targeted at softwood lumber companies in Canada, and has the potential to deeply impact profits. The exact financial impact to lumber producers is yet to be determined, but it all rests on the ability of these companies to absorb the tax in their pricing. Lumber companies will also have to figure out how to diversify their product markets, so as to not continue to be dependent on the U.S.
In the bigger scheme of things, some argue that it’s up to the Canadian government to reevaluate how lumber companies procure their timber. “Until such time as we are willing to take a look at public ownership of our land base and how logs are made available to mills the Americans are always going to be able to point at our market pricing system and cry foul,” Bob Simpson, the Mayor of Quesnel, B.C. told BNN in an interview today.
Canadian forestry workers
There are approximately 300,000 people who directly or indirectly work in forestry. The majority of forestry workers live in rural towns across B.C., Ontario and Quebec; towns that rely almost entirely on the lumber sector for employment. You can be sure that if production costs go up for Canadian lumber companies, labour costs will have to go down, meaning, significant job losses.
American families looking to buy a home
According to a report from the U.S. National Association of Home Builders, any kind of tax that adds to lumber prices could translate directly into the cost of a home. In exact terms, the December report predicted that a rise in lumber prices would add more than $1,300 to the cost of a new single-family house.
“In the short-term [U.S. producers] will see an increase in demand for their product,” Noami Christensen, senior policy analyst with the Canada West Foundation told Global News recently. “But in the long-term it’s really bad for the American consumer. Just a small increase of course in housing prices can affect a large amount of people’s ability to buy a home.”
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