Tariffs Are Behind Skyrocketing Lumber Prices
https://spectator.org/tariffs-are-behind-skyrocketing-lumber-prices/August 2, 2017
Back in April, President Trump slapped tariffs of around 20 percent on the Canadian softwood lumber industry. At the time, I wrote that it would cause lumber prices to rise, citing estimates that prices could increase by around 6.4 percent. Well, it turns out I was wrong, and lumber prices have not risen by around 6 or 7 percent. Instead, they’ve risen by much more since the spring—as much as 25 percent.
One contributing factor for this spike is not hard to see. Tariffs are taxes on the consumer, restricting the consumer’s options when purchasing a product. The levies make imported lumber more expensive, thus making American lumber a more attractive prospect for reasons not necessarily related to its quality or ease of procurement. It is not surprising that politically well-connected American companies, such as the U.S. Lumber Coalition, were strongly supportive of the import taxes. American lumber companies benefit, but at the expense of American lumber consumers that use the product as an input.
This price spike is occurring as the housing market is suffering. Materials needed to build new homes are becoming more expensive, and as a result, the production costs for homebuilders are increasing. This is resulting in a mismatch between sellers and buyers of homes: there is plenty of demand for new, inexpensive homes, but homebuilders cannot make a profit off homes at the prices that buyers can afford. Buyers want cheap homes, and, thanks in part to high lumber tariffs, homebuilders are less able to provide them.
The result of this has been plummeting confidence among homebuilders. The National Association of Home Builders’ confidence index has fallen to an eight-month low as home builders face higher supply costs. While builder confidence jumped following the election as President Trump promised lower taxes on corporations and reductions in regulations surrounding homebuilding, compliance with which makes up as much as a quarter of the cost of building a home. While builder confidence still remains high when compared to, for example, the rock-bottom lows of 2008, this recent drop highlights the administration’s habit of balancing policies that help businesses and consumers with trade policies that shoot American consumers in the foot....
