Chinese Tariffs on US Lumber Rolled Back
- The Chinese Trade War revealed that many US Hardwood producers are almost completely reliant on China.
- Lumber tariffs were the final blow to already deteriorating financials.
- With the trade war over, consumers and forest products workers expect a return to normal. This may not happen.
US Reliance on Chinese Markets
No one believed that retaliatory tariffs by the Chinese government would help US wood producers. However, many hoped that US manufacturers might reap some benefits in the way of lower pricing and increased access to raw materials.
Sadly, United States manufactures don’t use enough hardwood to compensate for the missing Chinese volume. Professor Gene Wengert describes a shrunken US manufacturing base. According to Wengert, “60% of cabinets and furniture sold in the U.S. is foreign made (prior to tariffs) so there is only a small industry left. Railroad ties and whiskey barrels are expanding. Housing is likely to drop in 2020 by 15%. Housing starts on the average are already -3% from 2018. Softwood [prices are rising due to shortage- -33% of this lumber is from Canada, and tariffs and weather (fires) have cut the supply greatly and the US has limited untapped forests, plus the US Forest Service has no money to offer timber for sale.”
Chinese Tariffs Correlated with US Hardwood Decline but Other Factors Loomed.
During the recession of 2008, many US manufactures either disappeared, relocated offshore or shrank
As a result. US sawmills and distribution yards scrambled to find new markets. At the time, China was a lifeline for many US forest product companies.
Ten years later, many mills relied almost exclusively on Chinese markets to move lumber production. However, it wasn’t really much of a choice. At the time, it was the best, perhaps only, option for survival.
By October of 2019, the Chinese trade war was in full effect. Unfortunately, US manufacturers used only a fraction of China’s consumption. Clearly, they offered little in the way of relief.
While the lumber tariffs were a problem, the deeper issue was detrimental reliance on one customer base. Not that US sawmills had much of a choice, mind you.
Was China Solely to Blame for Layoffs?
Shortly after the trade war started, several privately held lumber companies publicly appealed for government intervention. To hardwood industry insiders, this was unusual.
Hardwood lumber companies have a long tradition of keeping a low profile. With public companies, earnings and forecasts are announced regularly. However, private hardwood companies rarely broadcast current or eminent trouble.
Thus, the rush to blame tariffs for pending layoffs seems convenient.
According to Wengert, a drawn out log shortage hampered US sawmill operations well before the tariffs. “Prior to tariffs, there was a shortage of hardwood logs, for several reasons, including that China had moved into the wood to get logs for export. A shortage of loggers and logging truck drivers was also a factor. Softwood mills in the South were booming as a result of decrease from Canada and also hurricane construction.”
An industry veteran who wishes to remain anonymous had a cynical response. “Business was weak for US hardwood mills prior to any tariffs. However, they provided a great scapegoat for management to make cut-backs,” he observed.
Fragile US Forest Products Infrastructure Complicates Recovery Process
The wood products industry is capital intensive. In addition, there is a lack of experienced working professionals.
Accordingly, two problems occur beyond the obvious one when mills shut down.
The first and most obvious issue is one of worker layoffs. It is demoralizing to workers, management and the companies network of business associates.
However, the more troubling problem is displaced workers permanently leaving the industry. This is especially problematic in rural areas where other opportunities are scarce.
Forest products work is hard but consistent. When a sawmill’s reliability takes a hit, workers are less likely to stick around. Displaced workers sour on the industry and seek other employment. Once they’re gone, they rarely return,
Accordingly, when US hardwood producers shut down, the whole industry experiences serious indirect consequences.
Environmental Impact of US Lumber Tariffs
China did not stop buying or using hardwood lumber during the trade war. They merely bought it from sources outside of the United States.
While US hardwood exporters took a financial hit, the environment took a more damaging one. US producers boast a strong reputation of responsible sustainability. Unfortunately, many of the source countries that stepped in to replace US production do not.
Atlanta Hardwood Corporation President Hal Mitchell feels passionately about this issue.
I saw first hand last year the raw material depletion in Gabon from Chinese log exports. It was truly breath taking. I will be happy to share photos of the log export yard in Douala.
I am certainly passionate about our industry as we have such an amazing story to tell. We take a truly renewable resource and add value to it through lumber production to provide much needed jobs in our rural communities. Our mills are often the largest employer in the communities and we have been forced to reduce production and labor. Forest product payrolls total $55 billion annually in the US and account for over 3 million jobs! I fear that to “right size” to the current demand levels, we will have to reduce production by 30 percent or more. This will literally put thousand out of work and force dozens of plant closures.
Mitchell continues:
One of the most overlooked components of the loss of our industry would be the environmental impacts. I haven’t heard this discussed in any articles. Hardwoods are our most effective and efficient means to clean our air. Hardwoods are made from 49% sequestered carbon! When forest are managed properly though harvesting and silvicultural practices, they are much more efficient at removing carbon from the air. The carbon is then stored indefinitely in the products that we produce. With all of the buzz on climate change, we are literally missing the good of forest for the trees. Our industry is vital to the well being of our forests and air quality, not to mention the hazards of unmanaged forest due to forest fires.
Steve, I could write about this all day and will be willing to help anyway that I can. I am drafting a letter along these same lines to our congress and senators. Lamar Alexander (TN Senator) was instrumental in getting the verbiage changed from hardwoods to hardwood lumber in the phase one trade deal. The impacts of increased log exports from the US would have been even more devasting than the lack of lumber exports. Our government needs our input and help as our industry is simply to fragmented to have a united voice with the exception of Dana Cole and the Hardwood Federation. The same lack of a united voice has also allowed wood to be out of favor for substitute products, despite the science that proves the myriad of benefits from using hardwood lumber.
In the wake of the tariff rollbacks, the percentage of Chinese purchases that flows back to responsibly harvested US production remains to be seen. Certainly, it is less than 100%.
US Hardwood Industry 2020: Tariffs End, Coronavirus Begins
The US lumber industry’s trade war with China ended in Spring of 2020. However, Covid-19 (Coronavirus) quickly emerged as a new industry threat. Tariffs were targeted and intentional. Covid-19 is a macro-threat. Many uncontrollable variables are in play.
Coronavirus is the New Lumber Industry Foe
Chinese tariffs targeted the US wood products industry, directly. Covid-19 presents far reaching challenges for the global economy. Although both were Chinese exports, the Coronavirus has far greater potential to wreak havoc.
Why is Covid-19 Bad for the Wood Industry?
- Coronavirus is a global phenomenon, not limited to geographic regions.
- As of April 2020, hiding is isolation is the most effective way to avoid the virus. Thus, the Coronavirus taxes all human activity.
- We are still learning how the virus spreads. Accordingly, most economic activity including hardwood lumber businesses operate conservatively, if at all.
- International trade disruptions among many countries.
- Countries that do not yet have a Coronavirus problem are equally impacted. Virus avoidance strategies impede trade, as well.
- Fear of the unknown. Unfortunately, much us unknown about Covid-19. Thus, our actions are reactions are understandably conservative.
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