SBCA’s Observations Regarding the Canadian Softwood Lumber Trade Dispute

Softwood lumber trade tariffs and import quotas distort a normally functioning free market, which is bad for U.S. component manufacturers (CM). U.S. CMs require Canadian softwood lumber because U.S. producers cannot or will not meet the total supply they need.

The disruption of the softwood lumber free market in North America creates a situation where the following can easily occur:

  1. Canadian CMs already benefit from more competitive labor costs, which represents about 20 percent of the cost of goods produced, and favorable currency exchange rates. Because lumber represents roughly 50 percent of the cost of goods produced, the products manufactured by Canadian CMs become even more cost competitive than the same product manufactured in the U.S., due to lumber prices being less in Canada.
  2. Canadian lumber producers will choose to sell lumber to Canadian-based CMs first because those transactions aren’t affected by U.S. trade tariffs or import quotas. Canadian lumber producers may also choose to start or purchase their own component manufacturing facilities in Canada to take advantage of the two-tiered cost of lumber market.
  3. This competitive advantage for Canada-based CMs threatens the $5-6 billion of US wood truss, wall panel and lumber based I-joists sales where they are competitive. New Canadian sales will bring new jobs and more profits to Canada and conversely reduce jobs and profits in the U.S.

The clear losers in this situation are:

  1. Any U.S. manufacturer that purchases softwood lumber in the U.S. and competes with manufacturers from Canada. This includes about 50 percent of U.S. CMs.
  2. Any U.S. lumber buyer where softwood lumber is a significant cost of the final product sold. This includes building material suppliers, homebuilders, general contractors, framers, etc.
  3. Consumers of products made from softwood lumber.

The only winners in this situation are:

  1. U.S. lumber producers. Lumber import quotas constrain overall supply to buyers, and in combination with trade tariffs, create a situation where lumber production becomes artificially more profitable without any further investment.
  2. Softwood lumber traders. They benefit from a constrained supply because it leads to greater market volatility. In addition, uncertainty over future governmental intervention in the form of final determinations of trade tariffs and import quota levels adds to that volatility. Anyone that trades on that volatility can be a major winner if they are holding lumber inventory at a low price when the market is moving up or hedge well when the market is moving down.