Economics

Trump Gives the Gift of High Lumber Prices

Tariffs on softwood lumber from Canada are making timber owners richer and almost everyone else poorer.

What’s the opposite of “timber”?

 Photographer: Ty Wright/Bloomberg

Lumber prices are really high right now! The Chicago Mercantile Exchange futures contract for the softwood two-by-fours used in framing houses closed at its highest price ever on Tuesday, in fact.

If one adjusts for inflation, current prices are no longer record-setting. But an interesting pattern does appear if one adds in a few other key data points.

Oh, Maybe That's What Makes the Wood Expensive

Price of softwood lumber futures, in 2018 dollars*

Sources: Bloomberg, Chicago Mercantile Exchange, Bureau of Economic Analysis

*110,000 board feet of random-length softwood two-by-fours, adjusted using personal consumption expenditures price index

It appears that every time the U.S. picks a fight with Canada over its alleged subsidies of softwood lumber — which comes from coniferous trees such as pines, firs and cedars — U.S. lumber prices go up. The match is likely even closer than the chart above indicates, given that threats of tariffs (“countervailing duties,” to be precise) and follow-up tariff increases also affected prices.

The U.S.-Canada softwood lumber war first flared up in the early 1980s. Imports of lumber from Canada had been on the rise as environmental restrictions cut back on logging in U.S. National Forests, and the U.S. timber industry began to complain that Canadian local, provincial and national governments, which own almost all of the country’s forest land, were charging such low prices for timber that it amounted to an unfair subsidy. That has remained the chief complaint ever since. Various bi- and multi-lateral trade organizations have been charged with evaluating it, and as my former Bloomberg Opinion colleague and longtime softwood-lumber-trade-dispute aficionado Megan McArdle put it in a column last year:

When trade bodies get around to ruling, those rulings are often mixed: “Yeah, okay, maybe there’s some subsidy in there somewhere, but you Americans are wildly overreacting, so cool it with the huge tariffs.”

After that happens, the tariffs go down again and lumber prices drop … until another president decides to make a stink about Canadian softwood lumber. Donald Trump started doing that soon after taking office, and now the average duties on Canadian lumber are up to 21 percent. Unlike some of Trump’s other trade actions, this clearly does not signify a major departure from past presidential practice. But it’s worth asking whether it makes any sense.

The main beneficiaries of these softwood lumber trade spats appear to be owners of the land on which softwood-lumber-producing trees are grown. Most timberland in the U.S. is in private hands, and the biggest owner by far, according to the latest survey by Forisk Consulting, is Weyerhaeuser Co., a publicly traded real estate investment trust that has seen its stock price rise about 20 percent since the beginning of 2017. Billionaire John Malone is also in the top 10, as are the California and Massachusetts state employee pension funds. Yale University’s endowment does not appear on Forisk’s list but reported owning more timberland in 2009 than any entity but Weyerhaeuser does now.

Investment returns on timber in U.S. have been on a long decline, but they do seem to have perked up in the past during softwood lumber trade disputes.

Trees Aren't as Lucrative as They Used to Be

Annual return on timber investments

Sources: Bloomberg, National Council of Real Estate Investment Fiduciaries

Loggers and sawmill workers in the U.S. presumably benefit from more demand and higher prices for homegrown lumber, too. Logging and sawmill employment have also both been in a long decline — although the former has been more or less flat since 2009 and the latter has risen a bit, and neither shows much impact from the occasional softwood trade battles.

Less Work for Lumberjacks

Payroll employment, seasonally adjusted

Source: U.S. Bureau of Labor Statistics

Both these charts could be used as evidence that cheap Canadian lumber has been hurting the U.S. timber industry. But if so, it’s been helping the much-larger U.S. housing construction industry and the many buyers of its products. And for home builders, the recent price increases have been a challenge, as Bloomberg’s Jen Skerritt reported in March:

Framing lumber, including installation costs, accounts for about 18 percent of the average home’s selling price, according to the National Association of Home Builders. The rising price of timber comes at a bad time for U.S. builders, which are already contending with labor shortages and scarce supplies because of summer wildfires that wiped out some timberland in British Columbia.

I’m willing to believe that there are cases where restricting trade or otherwise favoring domestic producers makes sense — to protect a nascent industry, for example, or to keep key technological capabilities from slipping into the hands of an economic or political rival. No such justification springs to mind here. I also have some trouble with the notion that Canada is somehow cheating by selling its softwood lumber at a lower price than U.S. timber owners think it should. Maybe it's just cheaper to grow pine trees in Canada.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Justin Fox at justinfox@bloomberg.net

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    Brooke Sample at bsample1@bloomberg.net

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