AS LUMBER WAR DRAGS ON, CANADIANS LOOK EAST.

Canadian sector looks overseas over U.S. duties

TORONTO • As the chief advocate for America’s home builders, Jerry Howard smells a rat.

The tariffs his government imposed on Canadian softwood lumber imports in May 2017 were bad enough, he says. But the response to the duties by lumber producers on both sides of the border has been worse, reminiscent of how OPEC artificially pumped up the price of oil four decades ago, Howard charges.

Instead of triggering more domestic lumber production, the duties led to a wave of unwarranted pricegouging, alleges the CEO of the National Association of Home Builders (NAHB).

“We believe the lumber producers were acting not much differently than the oil cartels did back in the 1970s,” Howard said from Washington, D.C. “There is just too much evidence that leads us to conclude that there was profiteering going on.”

In Buffalo, N.Y., one local home builder told the National Post the effects on his business have been “crippling.”

The lumber industry says Howard’s allegations are nonsense, unsupported by facts that point to an array of other reasons for prices spiking earlier this summer.

“NAHB really has a credibility problem,” said Zoltan van Heyningen, executive director of the U.S. Lumber Coalition. “I am honestly perplexed at this latest odd NAHB claim.”

And he says the duties have, in fact, allowed American lumber companies to boost domestic production.

But their dispute underscores the complex and often-unintended consequences of protectionist tactics. One of the first tradewar salvos President Donald Trump fired at Canada has sparked growing strife between a huge consumer of wood in the U.S. and lumber producers — businesses almost entirely dependent on each other.

And U.S. home builders say they’re now looking for new sources of lumber, including even diseased or downed trees in American national forests that they — and Trump — argue are dangerously dense with trees.

Meanwhile, the American action has hardly brought the Canadian lumber industry to its knees, as happened after similar duties in the past. Higher prices and surging demand for new houses and renovation material in the U.S. have let producers recoup the average 20-per-cent cost of the tariffs and hold market share, said Susan Yurkovich, president of the B.C. Lumber Trade Council.

“Who’s really suffering is the U.S. consumer,” she said.

Canadian mills have also been steadily weaning themselves from the unpredictable American market, expanding into places like east Asia.

The U.S. could get even rockier for Canada if American negotiators have their way at talks to revise the North American free trade agreement. The U.S. is pushing to scrap a dispute-resolution system for the kind of countervailing and antidumping duties it slapped on Canadian lumber, a system whose rulings have generally favoured Canada.

One way or another, softwood lumber has been a festering sore for more than 30 years, with a series of breakdowns that triggered U.S. duties — sometimes costing thousands of Canadian jobs — followed by agreements that eventually ran out.

The core American grievance is that Canadian softwood is mostly harvested from Crown land, and the fees charged to take trees is so low they amount, in U.S. eyes, to a government subsidy. American lumber firms generally work on private land, with higher costs.

The most recent agreement expired in 2015 and last year the Trump administration imposed duties on most Canadian exporters.

The price of framing lumber had been $358 per thousand board feet shortly before the levies were announced, and rose steadily for the ensuing year, reaching a peak in June of $582 — a 62 per cent increase.

That represented an average $9,000 more per house, according to NAHB calculations. Prices have since fallen back to around $440 per thousand board feet, still adding $4,000 to the average home, the builders claim.

Howard contends that American and Canadian lumber companies — some of which own mills in both countries — are focused on expanding into Asian markets and have little motivation to resolve the trade dispute. Rather, they deliberately seized on the duties to nudge the price even higher, he charges.

That’s hogwash, suggests van Heyningen of the U.S. lumber coalition.

The price surge was not profiteering, but the result of several factors outside the firms’ control, including the boost in new home demand, he said. Van Heyningen pointed to a report by the independent Forest Economic Advisors that cited also the inflationary effects of a “massive” pine-beetle infestation in British Columbia, forest fires in B.C. and the U.S. northwest and even cold-weather problems that hindered shipping of wood by rail in Canada.

Regardless of the reasons, the hikes hit hard at Forbes Capretto, a custom-home builder in Buffalo, many of whose customers had already bought pre-built houses at locked-in prices.

“There’s no one to pass that cost on to,” said Bill Tuyn, the company’s vice president of development. “It’s crippling, quite frankly … Those kind of changes are very difficult to run a business around.”

Forbes Capretto is trying to reduce other costs so it doesn’t have to pass on the rising price of lumber to future potential buyers. But in a region where houses are relatively inexpensive and profit margins slim, the firm is still worried about losing customers.

“Every increment you go up excludes people from the market,” said Tuyn.

The lumber lobby responds that the price increases have so far had little impact on new-home demand; the number of housing starts in the U.S. has risen this year by 6.2 per cent over 2017.

B.C. lumber’s Yurkovich confirms also that American mills are increasing production, though says they’re still years away from being able to meet U.S. demand on their own.

She stresses that Canadian companies obviously never wanted duties in the first place, and that their U.S. counterparts have reaped the most benefit, profiting from rising prices without having to pay 20-per-cent tariffs.

To shield themselves against the volatility, Canadian producers have diversified, with the U.S. share of their exports falling from about 85 per cent in the 1990s to 50 per cent now, said Yurkovich.

U.S. home builders, buffeted by the decades-long dispute with Canada, oppose the duties, but also say an unusual source of wood in their own backyard could help lessen dependence on Canadian timber.

National forests in the U.S. now have about 300 trees per acre, compared to 100 in most other nations, Howard said. Easing regulations so that downed or diseased wood could be “culled” from those forests would help builders — and keep woodlands healthier, he argued.

The surprising idea was also cited recently by Trump, who blamed forest fires raging through California on fallen wood.

Meanwhile, the higher prices seem to have opened the door to unexpected competitors for Canada’s lumber mills, as Howard discovered on a visit to a Vermont home builder recently.

“He just opened up a wood pallet for his next project, and the lumber was Russian,” said the CEO. “We’re at a point where Americans and Canadians are exporting to China, and the Russians are finding it cost-effective to export to the United States … We’ve gone through the looking glass.”

EVERY INCREMENT YOU GO UP EXCLUDES PEOPLE FROM THE MARKET.