Duties Harm U.S. Lumber Buyer Businesses, Not Canadian Producers

by TJ Jerke and Sean Shields

It is currently estimated that over $1.2 billion in duties on softwood lumber imported from Canada will be collected in 2018. While most of that money will likely be coming out of the pockets of U.S. consumers as they purchase homes and other goods made from softwood lumber, component manufacturers (CMs) and other lumber consumers will also feel a squeeze as some of those costs cannot easily be passed on.

Sadly, those U.S. lumber user and consumers have only one place to lay the blame: U.S. lumber producers who petitioned the U.S. government to levy those duties. The tariffs imposed were intended to punish Canadian producers, but all evidence currently suggests the duties have done the exact opposite, while simultaneously driving much needed lumber supply to non-U.S. buyers.

For example, Don Demens, CEO of Western Forest Products Inc., told the National Post last week that record lumber prices largely offset the impact of U.S. duties as lumber revenues fell only six percent last year. This is in contrast to a 13 percent decline in lumber shipments to U.S. markets.

The company has now reversed plans that they had in place to cut back on capital investments, which was due in large part to the business investment uncertainty over the softwood dispute. “Our view is there’s not very much uncertainty anymore. We know the duties we have and we know the process ahead of us,” Demens told analysts last week. Hence, capital improvements can go forward.

Another example is Conifex Timber Inc, a Vancouver-based lumber producer, which saw earnings per share more than double in 2017 despite the tariffs. Conifex CEO Kenneth Shields told reporters the growth in demand (for lumber) is going to outstrip the increase in supply of lumber for the next 18 to 36 months in the U.S.

To make matters worse, Canadian exports into the U.S. are down since the tariffs were put in place, though this isn’t hurting Canadian producers as they continue to develop their overseas market.

Chinese softwood lumber imports are projected to mushroom in the near future. According to one estimate, Chinese imports were 21 percent higher during the first nine months of 2017 than in the same period in 2016. Canada’s new associate membership in the Pacific Alliance will help us become more competitive with in trade with Asia — an encouraging prospect as hope dwindles for a successful NAFTA renegotiation.