Lumber prices have soared in the last 12 months to levels never seen before. Lumber traded between $200 and $400 for 25 years, from 1990 to 2015. There was a brief spike to $600 in 2018, but the price quickly returned to $400.
The last 18 months have been wild. As the pandemic kept people in their homes, they started unprecedented amounts of house remodeling projects. Then increasing crime in large cities combined with the new possibilities of remote work triggered a vast migration of professional middle classes to new homes in safer, lower tax locales. And finally, government stimulus added fuel to the fire.
The last thing a rational government would want to do in this situation is to come up with ways to make lumber more expensive. Yet that’s exactly what’s about to happen. In late May 2021, the Department of Commerce announced that it would double tariff rates on Canadian lumber imports.
The dispute between the US and Canada over softwood lumber goes back decades. The first salvoes were fired in 1982. US sawmills and forest owners were unhappy with their profit margins, and they successfully lobbied the Department of Commerce to impose tariffs on Canadian lumber imports in 2002, claiming that Canadian sawmills were unfairly subsidized. Canada appealed the decision, and both WTO and NAFTA panels repeatedly found US tariffs unjustified and in breach of trade treaties. The US government decided to ignore those rulings; generous political contributions by industrial lobbies can trump any treaties. US house buyers had to eat the increased lumber costs, but who cared when house prices were going through the roof.
Price of Lumber (2011 – 2021)
In 2006, Canada capitulated and signed the Softwood Lumber Agreement, a ten-year deal that gave the US almost everything it asked for. The deal expired in 2015, and housebuilders breathed a sigh of relief as tariffs dropped. This state of affairs, however, was unacceptable to the lumber lobby, which immediately began agitating for new tariffs. Starting in 2016, the sclerotic US trade bureaucracy lurched into action, with petitions, reviews, investigations, and determinations filling up filing cabinets on both sides of the border, killing more trees in the process. Now, in 2021, after the 3rd Administrative Review of tariff investigations, we are facing the end game. The Department of Commerce will double tariff rates on Canadian lumber.
This decision couldn’t have come at a worse time. The National Association of Home Builders chairman Chuck Fowke said it best: “The administration should be ashamed for casting its lot with special interest groups and abandoning the interests of the American people. It knows that the lumber tariffs are nothing less than a tax on American homebuyers, renters, and businesses that rely on lumber products.”
The only mistake that Chuck Fowke makes is in pointing his finger at the wrong people. Administrations come and go, but industry lobbies remain. It was the Trump administration that started the process but the Biden administration didn’t miss a beat in bringing it to a close. Who sits in the White House is mainly a distraction so that we get entertained while our pockets are picked clean.
But let’s not forget that where there are losers, there are winners. Obviously, US sawmills are going to do well out of this. And a small band of renegade asset managers, sticking to their trend-following discipline, rode the lumber price wave all the way. It’s not always possible to defeat injustice, but it’s often possible to make some profit off of it.