Michel Kelly-Gagnon is president and chief executive officer of the Montreal Economic Institute
Anthony B. Kim is Research Fellow in Economic Freedom at the Washington-based Heritage Foundation
Lingering supply chain problems, increased cost of materials and labour shortages are putting upward pressure on house prices in the United States, which are 20 per cent higher than they were a year ago. With housing affordability threatened, American home builders are asking the Biden administration to temporarily lift tariffs on building materials such as steel and lumber from China and Canada.
In recent years, duties on Canadian softwood lumber have gone on quite a ride, rising to 20.2 per cent in 2017 and then coming back down to 8.9 per cent in 2020. However, in May of this year, the U.S. Commerce Department announced it was taking steps to substantially increase tariffs on Canadian softwood lumber imports once again. In late November, the Commerce Department announced that the average tariff will double, back up to 17.9 per cent.
These tariffs act as a tax on American homes, driving up costs for builders (and hence buyers) and exacerbating price volatility. In addition, volatile lumber prices skyrocketed this past year, adding almost US$36,000 to the cost of a new single-family home. Factor in supply chain issues, and it’s no surprise home-building has slowed. The gap between houses under construction and completed houses was the largest on record in September.
Ultimately, these duties benefit only American lumber producers, who seek to protect their market share. For decades, they have accused Canadian producers of taking advantage of the United States by “dumping” low-priced lumber. Canadian lumber producers, however, have been cleared of this charge every time by international trade arbiters. The U.S. International Trade Commission has found that Canadian lumber imports are not a threat to the American industry, so there’s no justification for slapping duties on them.
American lobbyists are good at getting what they want, but tariffs are a lousy way to treat any trading partner, much less a close friend and ally.
Moreover, jacking up duties on Canadian lumber will result in thousands of job losses in both countries, whether it’s American home builders or Canadian sawmill workers. These individuals should not be put out of work just to line the pockets of U.S. lumber producers – especially now, when both economies are grappling with the economic effects of COVID-19.
When thinking of home builders, it’s easy to picture large developers, but the majority of National Association of Home Builders members start 10 or fewer homes a year, and about half of them have five or fewer employees. In other words, it’s mostly small employers, not faceless corporations, that are suffering. And with governments tending to impose tariffs on materials that go into life’s necessities, such as food, clothing and shelter, it’s everyday consumers who are hurt the most.
It’s no surprise, then, that countries with fewer trade restrictions are more prosperous than those that restrict trade. According to The Heritage Foundation’s latest annual Index of Economic Freedom, the United States isn’t even in the top 10 freest economies in the world. At No. 20, there’s a lot of room for improvement, if the Biden administration is looking for something useful to do.
To be fair, at the recent G20 summit, the U.S. President announced plans to ease tariffs on steel and aluminum coming from the European Union. Commerce Secretary Gina Raimondo expressed confidence that the move will ease supply chain pressures, drive down cost increases, and be beneficial for American manufacturers who use these materials in their products.
The move is also expected to ease some of the tension on the strained trans-Atlantic relationship between the U.S. and the EU. But what about the relationship with Canada? And what about cost relief for millions of American home buyers? The lumber tariff increases will hit American consumers hard, as lumber costs today remain nearly double what they were before the pandemic.
Mr. Biden has committed to trade policies that protect and empower American workers. Well, in 2019, more than 4.4 million Americans made their living in residential construction. These jobs – and the dream of homeownership for many Americans – are directly attacked by import duties. Moreover, as noted by The Wall Street Journal in an editorial on Nov. 29, this type of measure flies in the face of the expressed desire of the Biden administration to fight inflation.
In our uncertain world, Canada and the United States remain strong allies and crucial trading partners. In 2019, Canada was the third-largest supplier of goods imported to the U.S., and the second-largest supplier of agricultural products. And it goes both ways – Canada is also the second-largest export market for American agricultural products.
Just as with steel and aluminum, the Biden administration should roll back tariffs on softwood lumber from Canada. There are enough economic and trade troubles in the world today. The mutually beneficial Canada-U.S. relationship should not become one of them.
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