Lumber Looms Large as Trade War Heats Up
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Prospective homebuyers are poised to pay more for housing as builders feel the squeeze from President Donald Trump’s tariff-driven trade policy.
Markets have been in turmoil over the last week after the president announced sweeping “reciprocal tariffs” ranging from 10-50% on goods from dozens of countries. Why the quotes? Some experts say the tariffs aren’t connected to existing tariff schedules but were informed by the U.S. trade deficit with each impacted nation. But that’s beside the point.
Canadian softwood lumber — a key building material in housing construction that comprises up to 24% of American softwood lumber consumption — managed to escape the president’s initial “Liberation Day” tariff package, likely because duties on the import were expected to be ramped up later this year as part of annual review by the U.S. Department of Commerce.
Sure enough, reports surfaced on Monday that officials may raise levies on Canadian softwood lumber from 14.5% to as high as 34.45%, following an analysis of how much Canada has been selling to the U.S. market below cost and the state subsidies behind this “dumping” practice.” It’s important to note, however, that the increase has yet to be finalized.
“This is an example of why it’s imperative that the U.S. and Canada get together and negotiate a new softwood lumber agreement,” said David Lehde, director of government affairs at the Dallas Builders Association.
Lehde told CandysDirt.com that Canadian lumber has been a decades-long trade issue between the two nations. “It’s apparently not an easy lift for either side,” he said.
A hike of some kind was on industry professionals’ radar considering the annual nature of the anti-subsidy, anti-dumping review, but apparently, no one told investors. Homebuilder stocks dropped on Monday after initially being spared from last week’s bloodbath (Canada was not listed as a Liberation Day target).
While the American lumber industry may be optimistic that their wares will prove more competitive in the domestic market, it will take time for existing mills to ramp up to capacity, even with some help from the U.S. Forest Service, which has been directed to increase timber outputs by simplifying permitting and taking deregulatory measures. And it will take even longer for new mills and the selling off of federal lands to yield better pricing for builders. In the meantime, builders of all stripes are bracing for increased costs.
“For us, we always look at a tariff as essentially a tax on the products that our builders have to use,” Lehde said, noting the tariffs are not an end in and of themselves.
Trump has made tariffs the cornerstone of his international trade policy, arguing that the United States has tolerated unmatched tariffs on many of its exports for far too long. The president also hasn’t been shy about using the threat of tariffs as a point of leverage in negotiations over non-trade issues (deportations, border security, war in Ukraine). Promises to revitalize American industry and bring back long-lost manufacturing jobs have also been central to the president’s framing of his policy.
“From a nonpartisan standpoint, they may have an end goal and could reach a point where they feel they’ve achieved it,” Lehde said. “Our concern is that time in between and how it affects not only our members’ ability to build a home but also the ability to produce attainable housing at a cost that families can afford.”
That time in between may very well see a dynamic where purchasers of Canadian softwood lumber look to domestic sources for their needs, increasing demand on homegrown and consequently driving that price up.
Needless to say, none of this bodes well for the nation’s affordable housing crisis. And we haven’t even touched on how the overall economic uncertainty is informing prospective homebuyers’ plans, or how an escalating cycle of retaliatory tariffs with China is shaking confidence in American homebuilding even further.
We’ll be picking this coverage back up tomorrow, looking more closely at the Dallas market and the implications for local builders and homebuyers.
