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Tariffs and Escalating Trade Wars

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Tariffs and Escalating Trade Wars

The American hardwood industry has been on edge for several months now, as tariffs and talks of escalating trade wars continue, with the biggest and most consequential situation existing between the United States and China. It is interesting to note that 30 years ago, Chinese demand for our hardwood resource was almost non-existent but only eight years ago, they surpassed Canada which had been our Number 1 importer for many years. Now the major importer of our hardwood resource, in both logs and lumber, China’s increased demand over the last year or so has bolstered the value of many of our species, most notably black cherry, from the doldrums we had experienced in the marketplace since the Great Recession of 2008 started.

When trade negotiations with other countries turned into tariffs being enacted by the US to “level the playing field,” they were met with brush-back and most particularly by the Chinese government. China promised a “quid-pro-quo”, saying that tariffs enacted by the US on any Chinese export will result in a retaliatory tariff on US goods exported to China.

We have already been through two phases of tariffs being enacted, the last happening on August 23rd which imposed costs of 25% on another $16 billion in Chinese products. The third round of US-imposed tariffs are due to take effect on October 1. China has issued a warning that, should these October tariffs be enacted, they will respond by placing an additional tariff of 25% on the following list of wood products: rough and sawn oak, birch, poplar, aspen and non-coniferous wood chips (as well as specific softwood species.) Tariffs of from 5% to 20% are slated to be applied to cherry, ash, maple and most other hardwood logs and lumber. (Source: Global Agricultural Information Network Report CH18043, 8/6/2018, pgs. 11-13.)

Should there not be any substantial trade agreement reached before October 1, it is uncertain as to how our markets will be affected; one school of thought is that “trade will remain subdued from the record levels of the past few years, or trade volumes will recover, with buyers and sellers absorbing the added costs of the tariffs.” (Source: Hardwood Weekly Review, August 17, 2018, Vol. 33, Issue 48.)

Ominous happenings for sure, but we want to leave you with some additional observations that bring some good news. With log and lumber shipments to China on a downward trend, a number of sellers had reported that they have been able to move more of these products domestically, as well as to Mexico and Europe. Also, of interest is that hardwood exports have accelerated with other Asian countries, with Vietnam being one of the primary Asian countries happily absorbing some of the supply that would have otherwise gone to China. Vietnam has steadily increased its demand for our hardwoods, and is now ranked as the third highest export market for us. (Source: Hardwood Weekly Review, September 7, 2018, Vol. 33, Issue 51.)

We will be posting an updated lumber price trends chart to show how talks of the tariff/trade war situation has already affected the hardwood lumber market, and we will certainly stay tuned to continuing trade talks as they continue to affect our hardwood industry.

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2018-09-25T14:35:45+00:00

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