Results from lumber tariffs highlight folly of protectionism

As the Trump administration weighs imposing steel and aluminum tariffs on U.S. allies, most mainstream economists are warning that such protectionist trade policies will result in harsh negative repercussions for the domestic economy.

But the president insists this course is needed to shore up struggling U.S. industries. So who is right?

A real-life tariff situation that my organization — the National Association of Home Builders — has monitored closely that has been flying under the radar for more than a year provides a clear answer.

{mosads}Last year, the Commerce Department imposed duties averaging more than 20 percent on Canadian softwood lumber shipments into the U.S. Since January of 2017, rising lumber prices have increased the price of an average single-family home by more than $6,000.

Much of this unprecedented price hike is due to tariffs, which are acting as a tax on home builders and home buyers, making housing less affordable for American families.

There is no getting around the fact that the U.S. must rely on Canada to fully meet its lumber needs. More than one-third of the lumber consumed in the U.S. last year was imported, and more than 95 percent of the imports came from Canada.

Lumber accounts for a larger share of the cost of a home than any other building material. At current prices, lumber accounts for approximately $22,000 of the cost of constructing a typical single-family home.

American home builders need reasonably priced lumber to build homes that working households can afford. As we move into the heart of the critical spring construction and buying season, this matter is becoming increasingly urgent.

This is why it is absolutely imperative that the Trump administration resumes talks with Canada to find a long-term solution to this trade dispute that will ensure American home builders and consumers have access to a reliable supply of softwood lumber at reasonable prices.

Unfortunately, the U.S. Lumber Coalition, which brought this case to the Commerce Department, has no incentive to go back to the negotiating table.

The punitive tariffs slapped on Canadian lumber exports into the U.S. exacerbate market volatility and put upward pressure on lumber prices. But most important, the tariffs have steeply increased domestic lumber producers’ profits.

During the week ending May 11, the Random Lengths Framing Lumber Index hit its highest recorded level — $543 per thousand board feet — since the index’s inception in January 1995. This represents a nearly 30-percent increase from one year ago.

Equally compelling, tariffs on Canadian softwood lumber will result in the net loss of 9,370 U.S. jobs in 2018. This figure includes an increase of 1,193 jobs in U.S. sawmills, and a loss of 10,563 jobs in all other industries because there are millions more jobs in the U.S. that depend on lumber than there are jobs in domestic lumber production.

In other words, nearly nine jobs will be lost in other U.S. industries for every job gained in domestic sawmills as a result of the lumber tariffs.

Adding insult to injury, even as American lumber producers seek relief from alleged unfair trade practices by our neighbors to the north, they have boosted profits by exporting increasing amounts of lumber. At the very least, these U.S. exports should be discouraged when there is a critical need at home.

On May 3, a group of 1,100 economists — including 15 Nobel laureates and advisers to presidents Reagan, George H.W. Bush, Clinton, George W. Bush and Obama — signed an open letter to President Trump and Congress warning that a protectionist trade policy threatens economic growth and prosperity.

The letter cited the infamous example of the protectionist Smoot-Hawley Tariff Act in 1930 that worsened the global economic downturn and intensified the Great Depression.

Reflecting the fear that history will repeat itself, the letter stated: “We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. A higher level of protection would raise the cost of living and injure the great majority of our citizens. Few people could hope to gain from such a change.”

The current tariffs on softwood lumber hammer home this harsh reality. American home buyers, home builders and the many other industries that rely on lumber products will continue to be big losers as long as these tariffs remain in place. It’s time to get back to the table and quickly bring an end to this trade dispute.

Randy Noel is the chairman of National Association of Home Builders.