The United States has decided to play hardball over softwood. As a result, real estate likely will be plunged even further into a recession that is already slowing new construction and weakening sales.
In a stunning decision made last week, the U.S. Department of Commerce slapped total tariffs of 32 percent on softwood lumber imported from Canada. Critics were flabbergasted by the size of the tariffs, and the only people left cheering were U.S. lumber mills.
The effects of the tariffs will be far-reaching, raising the costs of all new construction in the United States, from new houses and commercial buildings to simple home remodeling projects. The National Association of Home Builders (NAHB) estimates that the tariffs will add up to $1,500 to the cost of an average new home, which could price nearly a half-million American households out of the home buying marketplace.
So why are Canadian lumber mills being pounded with a one-third price increase south of their border? The lumber industry claims Canada is engaging in unfair trade practices, including predatory pricing, dumping and subsidies of the Canadian lumber industry by government agencies.
U.S. lumber interests did want import duties of up to 78 percent imposed on Canadian lumber. In August, they won a 19.3 countervailing percent duty based on a preliminary ruling. That number was jacked up by a 12.58 percent anti-dumping duty after the Trade Commission had time to consider all of the evidence.
A final provisional rate will not be set until mid-March of next year. Ironically, all of these numbers are considered "provisional" until a years-long review process makes them permanent. But by then, consumers and business already will be out millions.
Controversy has been swirling around the North American lumber trade for five years, ever since the signing of the U.S./Canada Softwood Lumber Agreement (SLA). The agreement expired last April, opening the door for new negotiations between the two countries.
In the past, the North American Free Trade Agreement (NAFTA) has overridden the SLA by restricting the importation of softwood lumber from Canada, resulting in higher construction prices for everything from room additions on single-family houses to highways and mammoth municipal projects.
The SLA was opposed by a broad-based group of consumer and trade organizations and companies representing more than 95 percent of softwood lumber consumption in the nation. On the other hand, big lumber companies were rather fond of the SLA. After all, it increased demand for U.S.-made lumber.
"Any way you look at it -- from a consumer standpoint, from an industry standpoint and from an economic standpoint -- the Commerce Department's actions to impose preliminary countervailing and anti-dumping duties totaling 32 percent on Canadian lumber shipments into the U.S. is bad trade policy, bad economic policy and would act as a new hidden tax on American home buyers, renters and consumers," said Bobby Rayburn, vice president and secretary of NAHB.
"Furthermore, we don't believe the Commerce Department's decisions will stand up to scrutiny or are consistent with the international agreements to which the U.S. is committed and expects other countries to abide by," Rayburn added. "This trade action is being used to try to pressure the Canadians into a negotiated settlement restricting trade, and we firmly oppose trade barriers such as export taxes or quotas."
The British Columbia Lumber Trade Council argues that thousands of Canadian jobs already have been lost because of the tariffs, with thousands more soon to be on the chopping block.
"The U.S. lumber industry is making a mockery of the greatest and most mutually beneficial trading relationship in the world," said John Allan, president of the BC Lumber Trade Council. "Once again, we are witnessing a small but well-financed lobby of the U.S. lumber producers pulling the levers of America's trade laws in a never-ending quest to drive Canada's top resource industry into the ground.
"Now more than ever, citizens on both sides of the border must call for a halt to this blatant protectionism. It is killing Canadian jobs, businesses and communities and the pocketbooks of U.S. consumers and homebuilders," Allan said.
What's more, Canadian lumber companies are disputing the Department of Commerce's findings. Weyerhaeuser Company, for example, insists it is not selling Canadian softwood lumber into the United States at prices below those in Canada.
The U.S.-based firm is one of six firms with Canadian operations asked to provide information to Commerce to determine if dumping occurred.
"This matter is about a trade disagreement between the United States and Canada, and the inability of the two countries to agree on what rules they want companies like ours to operate under," said Bill Corbin, Weyerhaeuser's executive vice president for wood products.
"The United States depends on Canada for about one-third of the softwood lumber used for housing construction and repair/remodel needs. The right way to solve this trade dispute is for the United States and Canada to negotiate a long-term, market-driven solution. They should be able to resolve this dispute through negotiation -- and not litigation -- in a way that benefits the economies of both countries," Corbin added.
But the fight is not over just yet, and Commerce is sure to face some tough battles in the months and years to come.
First, there's the U.S. Congress, where more than 100 members of the House and Senate have sponsored a congressional resolution calling for free trade on lumber between the U.S. and Canada.
Secondly, the Canadian government still can fight it out with Commerce, which won't finalize its ruling until the end of the year.
And then there's always the courts. Canada has threatened to take the issue to the World Trade Organization, claiming that the U.S. has no evidence against it and is trumping this whole issue up specifically to assist big lumber.
In the meantime, however, consumers and businesses will continue to be slapped around by a huge two-by-four of additional taxation.