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Biden administration could double Canadian lumber tariffs even as wood and construction costs soar

·3 min read

To combat alleged unfair Canadian trade practices, a U.S. Commerce Department report has concluded that the country needs to double the tariff on Canadian lumber from 9% to 18%.

Before the proposed hike, announced on May 21, could go into effect, it'll need to go through a several- month-long review process. Home builders, however, are already expressing dismay about the announcement.

"If the administration’s decision to double tariffs is allowed to go into effect, it will further exacerbate the nation’s housing affordability crisis, put even more upward pressure on the price of lumber and force millions of U.S. home buyers and lumber consumers to foot the bill for this ill-conceived protectionist action," Chuck Fowke, chairman of the National Association of Home Builders (NAHB), wrote in a public statement released on May 22.

Fowke says the decision "could not have come at a worse time" given the ongoing North American lumber shortage. On Tuesday, the cash price per thousand board feet of lumber climbed to a record $1,515, according to industry trade publication Random Lengths. That's up a staggering 323% since April 2020.

As Fortune has previously explained, this historic lumber shortage was spurred by a perfect storm of factors set off during the pandemic. When COVID-19 broke out in spring 2020, sawmills cut production and unloaded inventory in fears of a looming housing crash. The crash didn't happen—instead, the opposite occurred. Americans rushed to Home Depot and Lowe’s to buy up materials for do-it-yourself projects, while recession-induced interest rates helped spur a housing boom. That boom, which was exacerbated by a large cohort of millennials starting to hit their peak home-buying years, dried up housing inventory and sent buyers in search of new construction. Home improvements and construction require a lot of lumber, and mills couldn't keep up. Cue record prices.

The NAHB calculates that current lumber prices are adding $36,000 to the price tag of a typical new single-family home.

Increasing tariffs is "a terrible idea...I think it’ll continue to deter supply from shipping to the U.S.," Stinson Dean, CEO of Deacon Lumber, tells Fortune. Stinson does acknowledge that, on economic "academic" grounds, not everyone in the industry agrees with him that upping the tariff would increase lumber prices.

The biggest supporter of increasing lumber tariffs? U.S. wood producers.

“A level playing field is a critical element for continued investment and growth for U.S. lumber manufacturing to meet strong building demand to build more American homes,” Jason Brochu, U.S. Lumber Coalition co-chair, wrote in a news release. “The U.S. Lumber Coalition applauds the Commerce Department’s continued commitment to strongly enforce the U.S. trade laws against subsidized and unfairly traded Canadian lumber imports.”

In 2017, the Donald Trump administration, citing unfair trade practices, oversaw an increase in the Canadian lumber tariff to 20%. To help alleviate soaring lumber prices, the administration cut the tariff to the current level of 9% at the end of 2020. But the more recent procedural review by the Commerce Department—which finds that Canada is still heavily subsidizing its timber industry—puts a higher duty back on the table.

The Commerce Department's "preliminary determination" will now undergo a review before any final duties can be put into effect. Neither President Joe Biden nor his appointee, Secretary of Commerce Gina Raimondo, have publicly stated a stance. However, Raimondo did tell Congress she'd like to reach a long-term resolution to the U.S.-Canadian lumber dispute.

“The silver lining could be that we use this as an opportunity to all get around the table, including USTR [Office of the U.S. Trade Representative], to find a long-term solution with Canada,” Raimondo said at a Senate Appropriations subcommittee on Wednesday.

According to Fastmarkets, more than 25% of lumber consumed in the U.S. comes from Canada.

This story was originally featured on Fortune.com