Lawyers, lobbyists big winners in softwood scrap
U.S. President Donald Trump has set out to protect workers and businesses that make their living in the great American forest. But the immediate beneficiaries are probably going to be lawyers and lobbyists who inhabit the Washington swamp.
In the latest iteration of the president’s America First trade policy, Commerce Secretary Wilbur Ross announced Monday that he will seek a 20 per cent import duty on softwood-lumber imports from Canada, which are allegedly government-subsidized and, hence, unfair competition for U.S. products.
“People don’t realize Canada’s been very rough on the United States. Everyone thinks of Canada as being wonderful, and so do I. I love Canada,” Trump said Tuesday. “But they’ve outsmarted our politicians for many years.”
Thus did the president renew a trade dispute that has raged intermittently ever since 1982, when the U.S. softwood-lumber industry complained to the Reagan administration about increasing Canadian imports of this key home-building input.
Whatever else this struggle has achieved, it has kept a small army of trade associations and law firms fully employed in the nation’s capital.
Fighting Canadian lumber “dumping” is the raison d’être of the U.S. Lumber Coalition, founded in 1985 and headquartered — where else? — on K Street. Meanwhile, Canada’s wood products industry has its own Washington legal representatives, retained to draft contentious memorandums for the bureaucrats who adjudicate such matters at the Commerce Department.
The average American’s stake in all of this — or the average Canadian’s, for that matter — is considerably less clear than the Trump administration’s rhetoric would imply.
As a lumber producer, Canada enjoys a basic advantage over the United States: a timber inventory that’s 13 times greater, per capita, according to Daowei Zhang, a professor of forest economics and policy at Auburn University who has made a career of his own studying this never-ending kerfuffle.
Canada’s resource endowment, plus exchange rates and many other economic factors, helps explain the rise of Canadian softwood-lumber imports from a mere 7 per cent of the U.S. market during the Korean War to 30 per cent or so in recent years.
U.S. producers emphasize the fact that Canada’s forests are government-owned, whereas most U.S. timber stands are on private land. Provincial agencies set the price loggers must pay — delightfully known as the “stumpage fee” — for cutting down pines and other conifers, a.k.a., “soft” wood. U.S. producers say that this results in below-market stumpage fees for Canadian loggers — or, as the U.S. industry contends, a subsidy.
A 2105 Congressional Research Service report called evidence on this point “widespread, but inconclusive.” The U.S. side has not fared well in international arbitration.
Even so, Canada has agreed to a series of temporary market-sharing agreements, the most recent of which expired in the waning days of the Obama administration, thus freeing the Trump team to take its new position, whether in earnest or as posturing ahead of a NAFTA renegotiation remains to be seen.
The best thing for the public, in both countries, would be to use market mechanisms to allocate timber resources to the maximum extent feasible, then allow free cross-border trade in lumber as in (almost) everything else. May the most efficient producer win!
Certainly, limiting imports of Canadian lumber, whether through tariffs or by negotiated agreement, will make U.S. housing more expensive, since Canada supplied roughly 31 per cent of the U.S. market for softwood lumber in 2016 and softwood lumber accounts for about 7 per cent of the construction cost of a home, according to the Washington-based National Association of Home Builders (NAHB).
The NAHB, another District of Columbia lobby that the softwoodlumber dispute periodically activates, estimates that the jobs that Trump’s latest move saves in American saw mills would be offset elsewhere, resulting in a net loss of 8,241 U.S. jobs, $498.3 million in wages and salaries, and $350.2 million in taxes and other government revenue.
No doubt the housing lobby is a dubious proxy for the public, given its own dependence on government market manipulation and subsidies. Yet, in this case, the NAHB study illustrates a valid point: The Trump administration is not proposing to protect America from Canada; it’s proposing to protect certain American special interests from certain Canadian special interests.
Like all protectionist measures, this one would work not by increasing the existing stock of goods and services but by redistributing it. And the redistribution takes place on the basis of political criteria — nationalism, mostly.
That’s at the lofty level of rhetoric, of course. Down in the K Street trenches, the rewards will accrue to the best-connected lobbies represented by the shrewdest lawyers.
Oh, and they don’t actually have to settle the conflict to profit from it. To the contrary.
This, too, is Political Economy 101. Trump ran on two slogans in 2016: “America First” and “Drain the swamp.” As the Canada lumber conflict reminds us, the former is not necessarily consistent with the latter.