Between reporting on artificial intelligence and the Luka Doncic trade to the LA Lakers, news leaked about potential U.S. tariffs on imports from Canada. While headlines screamed – see the January 31st The Wall Street Journal editorial “The Dumbest Trade War in History” – the markets for many items, including softwood lumber, remained subdued, as measured by the limited “forward buying” (stockpiling) of key building products over the past week.
Let’s take a moment to provide context for the role of tariffs and their relative policy importance to markets for housing, lumber, and timber.
What is the Role of Tariffs?
In June 2020, the Louisiana Forestry Association published my column, “Tariff Troubles in the Timber Industry,” which addressed the trade war and tariffs with China. The piece defined tariffs as “taxes placed on imported goods or services.” Countries use tariffs to restrict trade, to protect domestic industries, or to raise revenue. The trade war with China attempted to, among other things, improve protections on U.S. intellectual property. How did tariffs with China affect the U.S. economy at the time?
Based on data for 2018 to 2020 from The Wall Street Journal, the U.S. Federal Reserve, and the U.S. Bureau of Economic Analysis, the multiple rounds of tariffs with China led to lower U.S. agriculture exports, reduced foreign direction investment (FDI) into the U.S., increased costs on appliances and furniture in the U.S., and led to a net loss of manufacturing jobs.
More recently, economic analysis by Wells Fargo and others quantified the potential for proposed tariffs in 2025 to slow U.S. economic growth while boosting inflation. Generally speaking, tariffs create frictions in markets. They are expensive.
How do Tariffs Affect the Forest Industry?
According to Time Magazine, the previous trade war with China hurt the U.S. lumber industry and moved forest harvesting from sustainable forest management in the U.S. to markets with less oversight.[1] Chinese furniture makers turned from U.S. hardwoods to suppliers in Russia and Malaysia because tariffs increased the costs to them of hardwood logs and lumber from the U.S. After the trade war started, U.S. hardwood exports to China fell nearly a third.
The recently proposed tariffs on Canadian softwood lumber would, if implemented, add 25% to the existing 14.5% duty, resulting in a gross effective tariff of 39.5%. However, the tariff tally takes place as the Canadian lumber industry continues to shrink. As of 2024, Canada’s softwood lumber capacity is 25% less than it was at its peak in 2006. The U.S. imports 50% less softwood lumber from Canada now versus 20 years ago. In a broader context, other trends and policies have more significant forest industry implications than near-term tariffs.
Demographics and Immigration
When looking long-term, we respect the underlying demographic forces affecting the forest industry marketplace. Two decades ago, in 2003, Schuler and Adair delivered a clear introduction to the relationship between demographics and the forest industry in “Demographics, the Housing Market, and Demand for Building Materials” in the Forest Products Journal (Volume 53, No. 5, pages 8-17). They noted how three trends tell the U.S. demographic story: immigration, aging, and fertility.
Trends in immigration, aging, and fertility inform our understanding of who buys forest products (demand) and who builds homes, plants trees, and works in mills (supply). Twenty years ago, the U.S. was unique among industrialized nations with positive growth in all three areas, each of which is associated with growing demand for wood and supplies of labor. This is no longer the case.
Conclusion
U.S. housing markets face headwinds over the next decade due to these demographic changes (see Forisk’s recent housing outlook). While tariffs on imported lumber can increase costs, these become less relevant if the demand for housing weakens or the availability of labor to build or repair homes falls.
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[1] “How the trade war is hurting the U.S. lumber industry and forests around the world,” by Charlie Campbell, November 27, 2019 in Time Magazine. Available at: https://time.com/5740290/trade-war-lumber-hardwood-environment-forests/
Interesting article, Brooks, thanks for the perspective and context. So, to add a bit more context, while tariffs may be less consequential than trends in immigration, aging and fertility, of the four, tariffs and immigration are the only two that are manageable from a government policy perspective. You lay out a clear, well-documented and sourced case as to why tariffs are bad for the industry – wonderful. I would suggest that additional emphasis and clarity on the negative impact of the current administration’s policy on immigration deserved a more pointed critique. We all know that immigrant labor in construction is significant (about 30-35%), of which about half is undocumented. Planting crews and other forest workers are also highly filled by immigrant laborers. As we saw a few years ago when Alabama cracked down on immigrants, these areas were particularly hard hit with labor shortages. We also know that immigrants (documented or otherwise) use a portion of the nation’s housing stock. While a reduced immigrant population may help reduce the cost of housing through reduced demand (on the margins), it also stands to reason it may also reduce the over-all demand for wood products as well. From a wood products industry perspective, the impact of the current administration’s policy on immigration (which clearly goes beyond deporting only criminals, and includes suspension of legal immigration pathways) is cause for concern, and should be addressed and amplified, even if just for reasons of self-interest.