Canadian Lumber Tariff Could Kill More Jobs Than it Creates, Says Phil Crone

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New House under Construction

By Phil Crone
Executive Officer
Dallas Builders Association

Labor, Land, and Local regulation add up to the three “L’s” of Dallas’s affordability crisis. On April 25, the Trump administration added a fourth “L” — Lumber — to that equation when they announced plans to impose duties of up to 24 percent on most Canadian lumber. The most recent agreement between the two nations expired on Oct. 12, 2015, and was followed by a one-year cooling off period before a new agreement could be negotiated.

Before the tariff, the other three “L’s” accounted for much of the $100,000 premium on new home prices when compared to the existing market. Now, the escalation of a decades-long trade dispute between the United States and Canada is making matters worse. The industry knew that striking a new agreement would have its challenges when the cooling off period ended in October, but few predicted those challenges would include Donald Trump and his protectionist stance on trade finding their way into the White House the following month.

The way lumber is harvested in the two countries is at the heart of the dispute. In Canada, companies pay a fee to harvest trees from public lands, whereas, in the United States, most of the logging is done on private land since most public land is off limits. American companies argue that this constitutes an unfair advantage for Canadian companies.

Thirty-three percent of the lumber used in the United States last year was imported, with more than 95 percent of those imports coming from Canada. However, only a small percentage of those imports are used in the Dallas area, where species such as Southern Yellow Pine are much more common.

The impact of the tariff itself is much greater than the amount of Canadian lumber that actually reaches the Dallas market. Many Dallas Builders Association members are reporting lumber cost increases in the 20 percent range. Depending on which builders you talk to, some have seen a slow increase, others more sudden, as suppliers braced for retroactive duties on some Canadian companies.

Some of the price increases in the Dallas area are legitimately linked to the dispute, but I wouldn’t be surprised if a few suppliers are not letting a good crisis go to waste. In the past, these disputes usually follow a predictable timeline starting from when domestic producers lobby for countervailing duties and concluding when a new deal is negotiated using NAFTA dispute mechanisms. My guess is that this time things will not be as predictable or resolve themselves anytime soon.

The lack of predictability in the market presents challenges in and of itself. Builders are having all sorts of trouble bidding jobs accurately, especially on fixed priced contracts that may not start for another four or five months.

Zoltan van Heyningen, executive director of the U.S. Lumber Association, justifies the tariffs on the grounds they benefit American labor. By “American labor” he means Americans employed as lumber producing workers. He conveniently fails to account for the fact that housing and related industries who use softwood lumber and are directly impacted by these tariffs employ 4.5 million Americans. For those of you scoring at home (or relying on the Bureau of Labor Statistics, as I have) 31 workers are negatively impacted for every one who may benefit.

The impact on the consumer is even more sobering. According to the Real Estate Center at Texas A&M, every $1,000 increase in the price of an entry-level, single-family home leaves more than 20,000 Texas families unable to afford that home.

Short supply and high demand driving up labor and land prices, local regulation fueled by NIMBYism (Not In My Backyard) and FOPUOSMIN (Fear Of People Unlike OneSelf Moving In Nearby), along with misguided views that housing must cost a certain amount in order to pay for itself, have pushed prices into uncharted territory already. Adding another “L” to the three others we are already contending with could result in a big “L” for the Dallas economy as we lose our affordability advantage and see an end to the good times we have recently enjoyed.

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Joanna England is the Executive Editor at CandysDirt.com and covers the North Texas housing market.

1 Comment

  1. Jon Anderson on May 4, 2017 at 10:19 pm

    As the DMN has reported, immigrants account for a lot of construction jobs and they’ve been in shorter supply due to this administration’s anti-immigrant rhetoric. In the end, if there’s less, more expensive lumber, there may also be less, more expensive workers to fashion it into homes…that’s half your “L’s” messed-up by politics.

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