• Tag Archives lumber

  • Here’s How Biden Is Making It Even Harder to Buy a Home

    Posted on by Azrael Comment

    The US housing market is extremely competitive right now; prices are high and houses are selling fast.

    When Molly Rodela — who is a wife as well as a mother to two kids — was finally able to find a suitable house for a reasonable price online, she could not spend any time considering the decision. She contacted her agent, visited the house without her husband, and then put in an offer $20,000 above the asking price all in the same day.

    With her quick action, the Rodelas were able to get the house. But many have not been so lucky.

    Moreover, the factors behind the tight housing market are concerning.

    For homebuilders across the country, it has become harder and harder to create affordably-priced housing. One of the reasons is the increased labor costs associated with a shortage of skilled workers.

    And a huge factor has been the recent spike in the price of lumber. In fact, the National Association of Homebuilders recently reported that the cost of building a new house has gone up by $24,000 due to soaring lumber prices alone.

    For homebuyers, the issue may go from bad to worse.

    The Biden administration recently took the first step to double tariffs on Canadian lumber from roughly nine to 18 percent.

    In doing so, the administration is falling for an age-old economic fallacy.

    In his timeless book, Economics In One Lesson, Henry Hazlitt argued that “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

    In other words, Hazlitt believes that we must not assess policy with blinders on, but rather with a broad understanding of the policy’s consequences.

    In the chapter titled “Who’s ‘Protected’ by Tariffs,” he applied this principle to anti-trade protectionism specifically, pointing out that people who support tariffs fall for the fallacy of “considering merely the immediate effects of a tariff on special groups, and neglecting to consider its long-run effects on the whole community.”

    In this case, Biden is justifying his tariff hike by its immediate effects on the American lumber industry. He argues that when Canada subsidizes their lumber industry, they are able to undercut US producers in an unfair way. So, by implementing a tariff on Canadian lumber, Biden is making Canadian lumber more expensive, thus giving American lumber companies a competitive advantage.

    But a true practitioner of the art of economics would then ask: who else does the tariff impact, and how?

    One important question to ask, for instance, would be how does the tariff impact American industries that purchase lumber? The answer: they have to pay higher prices.

    The burden of these increased production costs inevitably ends up being passed onto consumers. Basic economics tells us that when the price of one resource used to produce a good goes up, the price that the consumer eventually pays for that good rises as well.

    This is exactly why home buyers — and consumers of products that use lumber in general — will be the victims of Biden’s lumber tariff.

    A shortage of lumber as a result of the pandemic led to its price in May being up nearly 400 percent over the past year. But prices have begun to drop again because production has started to ramp up. To increase the tariff — which is just an import tax — would serve to restrict the supply of lumber. This would not allow prices to decrease back to pre-pandemic levels.

    The natural consequence of high lumber prices is the increase in price for all of the goods that use lumber in their production. This does not just stop at houses, but rather includes things such as furniture and storage appliances as well. The average consumer will then have to pay a higher price for all of them.

    Tariffs are not only harmful to individual consumers, but the economy as a whole. As Hazlitt points out, “Higher prices in one area mean that they will not be able to spend that money on something else, thus hurting other industries as well.”

    For example, if, because of Biden’s tariff hike, people have to spend more on houses and other things made with lumber, they will have less money to spend on things such as restaurants, tourism, and consumer technology. Therefore, workers and investors in those industries will be economically disadvantaged by the tariffs, too.

    As Hazlitt says, “In order that one industry might grow or come into existence, a hundred other industries would have to shrink.”

    At the core of the matter, President Biden is making the mistake of only looking at the effect of this tariff on a special group — the US lumber industry. But, in doing so, he is neglecting the millions of Americans who — far from being protected — will be economically harmed by the tariff hike, including consumers (especially homebuyers), workers, and investors.

    Tariffs, much like any number of other well-meaning government programs, seem like a plausible solution to certain problems we face. But, if we think like an economist and widen our lens to encompass the bigger picture, it becomes clear that they will primarily hurt the American people.

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    Jack Elbaum

    Jack Elbaum is a Hazlitt Writing Fellow at FEE and an incoming sophomore at George Washington University. His writing has been featured in The Wall Street Journal, Newsweek, The New York Post, and the Washington Examiner. You can contact him at jackelbaum16@gmail.com and follow him on Twitter @Jack_Elbaum.

    This article was originally published on FEE.org. Read the original article.


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  • Trump’s Lumber Tariffs Hurt Hurricane Recovery

    Posted on by Azrael Comment

    As the flood waters from Hurricane Harvey dry up, the residents of affected areas are turning to the task of rebuilding their storm-ravaged communities.

    Early estimates of the damage suggest they have their work cut out for them. The Texas Division of Emergency Management reports that the storm destroyed 9,407 single family homes. Another 44,013 experienced major damage. Moody’s Analytics estimates that the cost of the hurricane will be in the $51–$75 billion range.

    President Donald Trump has pledged $1 million of his own money to Harvey relief efforts, along with a $15 billion aid package for areas affected by the storm. But he’s also pushing protectionist policies that will raise the cost of the basic building materials, making recovery a longer, more difficult, and more expensive process.

    The Price of Protectionism

    In April, the Trump administration imposed countervailing trade duties averaging 20 percent on imported softwood Canadian lumber, a common material in home construction. In June, he hit them again with anti-dumping duties of 6 percent.

    The initial application of these tariffs aggravated consumers of Canadian lumber, says Kevin Mason, managing director of ERA Forest Products Research (a timber market analyst firm), and the damage done by the storm has only made those consumers’ situation worse.

    “Some people who’ve just gone through this devastation—they’ve had their house flooded or it’s been destroyed,” Mason says. “To the degree that they’ve got to go out and get lumber to do some repairs, they’re going to be paying close to record high prices. And part of the reason prices are as high as they are is because of these duties.”

    Tariffs Are Hurting Importers

    The U.S. has imposed tariffs on Canadian lumber imports periodically since the mid-1980s. What makes the latest round of tariffs unusual, Macon says, is the degree to which U.S. consumers have eaten the costs of those trade barriers.

    “Historically the Canadians have had to absorb half if not the bulk of the duties,” says Mason. “This time the U.S. consumer has borne the entire brunt.”

    According to a pricing index put out by the timber market publication Random Lengths, lumber prices hit a peak of $430 per thousand feet of board in April, the month countervailing duties were first imposed. That’s 20 percent over where lumber prices were in January, and nearly 25 percent higher than where prices were in April 2016.

    The increase has not gone unnoticed by builders, including those in areas affected by Hurricane Harvey.

    “A lot of our distributors, and lumber companies that we deal with, were buying a lot of that imported lumber because they got a much better price, and that rolls over into the prices that we pay,” says Patrick Mayhan, vice president of purchasing for the Houston-area company Westin Homes.

    That dependence on cheaper Canadian lumber meant that Mayhan’s company was particularly vulnerable to Trump’s tariffs.

    “It was a significant hike at the time. It was a 20 percent increase,” he tells Reason, adding that “we had no choice but to pass that along to our retail pricing for the home. And that’s a significant amount, because lumber is a big part of the cost of building a home.”

    Adding Insult to Injury

    Increased demand from the storm would push up prices regardless. But thanks to the tariffs, that price increase is starting from an artificially inflated baseline. For some, that could be the difference between a new home and no home at all.

    “Currently for each $1,000 that you tack on to the price of a new home, about 150,000 people nationwide can no longer afford homeownership,” says David Logan, director of tax policy analysis for the National Association of Home Builders (NAHB). Logan says the tariffs have increased the costs of lumber for NAHB members by 15 to 20 percent, increasing the cost of a new home by some $1,700.

    Zoltan van Heyningen, executive director of the pro-tariff U.S. Lumber Coalition, disputes the numbers coming from the NAHB, saying the impact of tariffs on home prices and homeownership has been overhyped.

    “The impact on consumers is negligible to none. The impact on producers is life or death,” he tells Reason.

    But builders like Mayhan are quickly approaching the point where they cannot pass added costs onto the purchasers of homes. Though it’s still too early to tell, the expected price increases coming in the wake of Hurricanes Harvey and Irma might push them past that point.

    For some builders, that pressure to contain retail prices will lead them to compensate for higher lumber prices with lower profit margins. For others, particularly those operating at lower margins, reduced returns might mean forgoing new construction projects.

    That’s particularly true for people planning to rebuild in the aftermath of Harvey and Irma. In addition to near-record-high lumber prices, the costs of other materials—drywall, sheetrock, siding—have gone up as well.

    Trump told reporters recently that the response to the recent storms is “gonna cost a lot of money.” Without his tariffs on imported lumber, the cost could be considerably less.

    Reprinted from Reason


    Christian Britschgi

    Christian Britschgi is a reporter for Arizona Watchdog.

    This article was originally published on FEE.org. Read the original article.


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  • The Log Tax Is Harming Both Americans and Canadians

    Posted on by Azrael Comment

    The Log Tax Is Harming Both Americans and Canadians

    In early May, Vancouver in Canada’s far western province of British Columbia is a beautiful place. Full-bloom dogwoods, rhododendron, and azaleas blanket the city against the backdrop of a sky-blue harbor and beckoning snow-capped peaks.

    “What a contrast!” I thought as I walked the streets of Vancouver two weeks ago, “between the calming artistry of nature and the nastiness of politics.”

    I was there barely a week after President Trump’s imposition of 20% tariffs on logs imported from Canada. It was also just days before elections that would determine which party controlled the British Columbia Legislature and, thereby, who would serve as the province’s next Premier.

    The timing was superb for enjoying the sites of Vancouver but not so good for Trump’s tariffs.

    A Tax on Americans

    As Mark Perry explained, the new duties were ushered in amid plenty of bluster about “unfair” and cheap, subsidized lumber from our northern neighbors but they are actually taxes levied on Americans who buy Canadian lumber, especially American home builders, bed-frame and pallet manufacturers, and picket-fence makers. All the time-honored logic of trade economics applies here, suggesting that not much good, and perhaps a lot of harm, would likely ensue for parties on both sides of the border.

    I picked up a copy of the British Columbia edition of The Globe and Mail to see what the Canadians were saying about it all.

    As you might imagine, nobody was cheering for Trump and the U.S. In fact, the incumbent Liberal Party of Premier Christy Clark, locked in a battle for votes with the decidedly more socialist NDP (New Democratic Party) and the equally socialist Green Party, felt compelled to prove that its generally trade-friendly posture only went so far. Clark suggested retaliation in the form of restrictions or an outright ban on thermal coal from the U.S. The other parties promised an even “tougher” stance.

    Stooges

    Protectionism is like a Three Stooges episode: You slap me, I poke you in the eye. The one difference is that when a government slaps and pokes another government, each one ends up assaulting its own citizens as consumers and producers.

    Trump’s ill-timed tariffs were pushing all the major British Columbia political parties in the wrong direction. Voters ended up giving the Liberal Party a razor-thin plurality which may yet dissolve into a loss if the NDP and the Greens team up in a coalition. If that happens, both socialism and protectionism will get a boost in British Columbia while American lumber buyers get slammed.

    But lest we dump all the blame on Trump, let’s understand that this is really a “pox on both your houses” conundrum. In the same newspaper in which I read about Premier Clark’s threatened tit-for-tat, Canadian columnist Barrie McKenna pointed his finger at Canada’s existing policies for prompting the Trump tariffs.

    Export Restrictions

    One such policy is the practice of federal and provincial governments in Canada charging below-market rates when they sell lumber from their vast land holdings. That’s a subsidy, and if the land were owned privately it’s hard to imagine that private firms would charge less than the market will bear and encourage over-use of their resources through underpricing simply to be charitable.

    Likely more counter-productive than those subsidies, writes McKenna, are “log export restrictions that exist only in British Columbia.” (Though both British Columbia and the federal government in Ottawa restrict the export of logs from government land, British Columbia is the only government that restricts exports from private lands as well).

    I had to read that two or three times. Log export restrictions? What? So governments subsidize logging on their lands and then stifle the sale of logs to the U.S.? Yes. This is government, mind you, so it doesn’t have to make sense to anybody but politicians and their politically-connected friends.

    McKenna writes,

    Those restrictions, in place since the 1880s, are an aberration in Canada’s generally open economy. Indeed, logging is a rare example where governments dictate to private interests what they can export, for reasons other than national security … Economists in Canada have warned for years that the policy lessens competition for logs, increases the supply of timber available to mills in British Columbia and suppresses prices by up to 50 percent. And that lowers the cost of finished lumber (emphasis mine), such as two-by-fours, destined for the U.S. market.

    If that’s confusing, just think of it this way: What government gives loggers with one hand in British Columbia, it substantially takes with the other by telling them where they can sell their logs. Subsidized logs that can’t go to the U.S. because of export controls end up at Canadian mills at depressed prices. There, they are converted into planks and two-by-fours whose export is not restricted. And it’s those planks and two-by-fours that Trump just slapped a 20% tariff on.

    A Better Path

    You slap me, I poke you in the eye. Wouldn’t it be better for everybody if we all just stopped slapping and poking each other? Yes, and that’s called free trade. The problem is that even though “free trade” makes all the sense in the world, governments have both the power and the incentive, at least in the short term, to slap, poke, subsidize, and sell favors.

    Moreover, log export restrictions are not unique to British Columbia. “The United States, for example, has an export-licensing regime for trees cut on federal and state lands,” says McKenna. “What’s unusual about Canada’s regime is that it also covers trees on private land in British Columbia.”

    One of the reasons governments shouldn’t intervene in trade in the first place is that interventions become addictions. The benefits are targeted on a few at the expense of the many and when those benefits are offset by a government on the other side of the border, it’s hard to get the first government to call it quits. Intervention A leads to Intervention B, which provokes Intervention C, which in turn sparks Intervention D and so on, until the process is reversed or the alphabet and economic freedoms are exhausted.

    From another city in Canada – Montréal, in the eastern province of Quebec – comes an intriguing proposal to scale back some of this nonsense. The Montreal Economic Institute suggests that trade negotiators for Canada and the U.S. should work out a “lumber for cheese” swap: the U.S. would dismantle its barriers on Canadian lumber and in exchange, Canada would get rid of its barriers on American dairy and poultry.

    MEI says the crazy-quilt patchwork of subsidies, quotas, and export controls on both sides of the border cost consumers billions in higher prices. Since “supply management” by the two governments has been problematic from its inception, premised as it is on the insane notion that fines and penalties help the economy, let’s just negotiate them away. Tit-for-tat in the right direction, for a change.

    Free traders like myself see many advantages to abolishing protectionist devices unilaterally, regardless of what the other side does. As Frederic Bastiat explained, we should be grateful when the sun shines its light for free, even if it means candlemakers sell fewer candles. Forcing everybody to paint their windows black to keep out the free sunlight only deprives everybody of value and convenience. We can apply the savings to some other endeavor, stimulating yet other industries in the bargain. If that’s unrealistic, it’s only because of politics, not because of economics.

    Let’s rid ourselves of these senseless interventions as soon as we can, one way or the other.

    Thinking about all this as I departed beautiful Vancouver, I found myself shaking my head as I’ve done so many times when contemplating the policies of government. What a ridiculous, self-defeating racket this protectionist stuff is!

    Oddly enough, it was the 20th-century comedian Jimmy (“The Schnoz”) Durante who gave us a succinct answer to this recurring problem when he said, “Don’t put no constrictions on da people. Leave ’em da hell alone.”

    Additional recommended reading:

    Lawrence W. Reed

    Lawrence W. Reed is President of the Foundation for Economic Education and the author of the book Real Heroes: Inspiring True Stories of Courage, Character and Conviction. Follow on Twitter and Like on Facebook.

    This article was originally published on FEE.org. Read the original article.


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