U.S. Tariffs on Canadian Lumber Yield Surprises
October 21, 2002
When the U.S. government slapped a 27 percent tariff on Canadian lumber in May, lumber interests here anticipated a slowing of imports and an opportunity to make a few more bucks by raising prices.
But the plan backfired as Canadian firms stepped up exports, which led to a glut of lumber on the U.S. market -- and lower prices.
Here's how it happened:
- Canadian lumber producers decided to offset their higher costs due to the tariff and their lower prices by increasing volume.
- Meanwhile, U.S. companies were increasing production, while other low-cost foreign suppliers, notably those in Europe, began rapidly increasing experts to the U.S. -- all of which increased the glut.
- Canadian producers are able to sell at lower prices because their mills are much more efficient than those in the U.S.
- To make matters even worse for the U.S. producers, popular engineered wood products and non-wood products are displacing traditional lumber and plywood in homebuilding -- and some mill owners are running lumber operations as loss leaders in order to continue generating wood chips for paper and pulp operations.
The lesson is that the tariff, rather than propping up American producers, has led to nothing but trouble for them, observers say.
Source: Andrew Caffrey, "The Outlook: U.S. Tariff on Canadian Lumber Backfires," Wall Street Journal, October 21, 2002
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