HOME PRICES COULD GO UP,
Commerce secretary deflects talk of trade war with neighbor
A decades-long trade dispute between the U.S. and Canada has re-emerged, possibly affecting new home prices and triggering concerns of brewing tension.
U.S. Secretary of Commerce Wilbur Ross said late Monday the department’s investigation has found that Canada has been improperly subsidizing its softwood lumber exporters, and the U.S. will begin collecting tariffs on shipments crossing the border. Rates will vary, with one Canadian company paying 3% and others paying typically about 20%.
Canadian imports to the U.S. — valued at about $5.7 billion in 2016 — make up about 30% of all softwood lumber used in U.S. residential housing construction.
The National Association of Home Builders, which has been lobbying against the lumber tariffs, criticized the move and said it would result in higher prices for newly built homes.
U.S. lumber producers say subsidized — and cheap — Canadian imports have driven U.S. pro- ducers out of business and tariffs will reinvigorate the industry and generate more jobs. “It’s creating a level playing field,” says Zoltan van Heyningen, executive director of the U.S. Lumber Coalition.
The tariffs are the latest evidence of President Trump’s increasing pressure on Canada as he looks to negotiate the North American Free Trade Agreement, the 23-year old trade deal among the U.S., Canada and Mexico.
In a speech in Wisconsin last week, he criticized Canada over a lingering dispute over ultra-filtered milk, a concentrate used to make cheese. Trump repeated the criticism Tuesday on Twitter, saying “Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!”
In a press conference, Ross deflected any possibility of a trade war with Canada, saying the disputes are isolated to the lumber and dairy industries. “We look forward to constructive discussions with Canadians as we get into NAFTA,” he said.
Questions to consider:
Q: Why did the Trump administration decide to impose tariffs on Canadian lumber? A: Disputes between U.S. lumber producers and their Canadian rivals have been going on for decades. The last trade agreement between the U.S. and Canada, the Softwood Lumber Agreement, expired in 2015. And American producers have been asking for an investigation into what they consider unfair subsidies the Canadian government offers its lumber industry.
In Canada, forest lands are owned mostly by the government. Canadian provinces boost lumber producers’ competitiveness by charging them reduced royalty rates for cutting trees, U.S. lumber producers say. In its investigation, the Commerce Department agreed and concluded that subsidies to Canadian producers ranged from 3% to 24%. “It’s artificially adjusted down every time the market is facing pressure,” van Heyningen says.
In the U.S., forest lands are privately owned, and royalty rates are set by market forces. Q: How would the tariffs affect consumers in the U.S.?
A: Depends on whom you ask, but an increase in newly built homes is likely. The NAHB says a 19.9% tariff would result in a 6.4% increase in prices paid by U.S. consumers. The price of a singlefamily home would increase by $1,236, it says. “This is going to increase the cost of construction of residential houses,” said Jerry Howard, CEO of NAHB. “Producers will try to pass on the cost
to consumers if they can.”
The figures are exaggerated, van Heyningen says. The lumber that’s subject to the tariffs makes up about 2% of production costs of U.S. homes, he says. He estimates the price increase for American consumers would be only about 10% of the price increase estimated by the NAHB. As for jobs, he adds, “If you have fair trade, you’d have more U.S. producers using U.S. workers.”
Q: Trump is also criticizing Canada over its policies that protect its dairy farmers. Are the issues related?
A: While specifics of the issues are different, they point to the Trump administration’s concerns that Canada continues to protect certain industries even with NAFTA ostensibly promoting free trade. “They are generally a good neighbor. That doesn’t mean they don’t have to play by the rules,” Ross said.
Canada long has protected the country’s dairy industry by levying tariffs on imports. But ultrafiltered milk from the U.S. had been an exception, and the cheaper American imports were popular among Canadian processors. But a year ago, Ontario, Canada’s most populous province, changed rules so local processors can buy ultra-filtered milk from Canadian producers at lower prices, thus quickly weakening demand for U.S. milk products.