Recent tariffs imposed on Canadian softwood lumber should reduce the amount of lumber the U.S. imports from Canada and boost the Idaho lumber industry this year. Softwood lumber — made from pine, fir, cedar and spruce — is mostly used for framing new houses.
Last year, according to Wood Resources Quarterly, imports from Canada accounted for 32 percent of lumber used in the United States. Less competition from Canada should boost U.S. mills’ profits, production and employment.
The countervailing duties on Canadian lumber imported to the United States range from 3 percent to 24.12 percent, averaging 19.88 percent. The U.S. Commerce Department plans to impose additional fees that would mean some lumber importers would face duties as high as 30.88 percent. Commerce says Canada is unfairly selling lumber in the U.S. below production costs, aided in part by improper government subsidies.
The new tariff is the latest step in a 35-year-old trade dispute between the two nations. U.S. lumber producers argue that the Canadian government unfairly subsidizes its lumber industry, since most timber cut in Canada comes from provincial forests. Provincial governments set prices administratively and are lower than if they were set in a competitive market. Under U.S. trade remedy laws, foreign trade benefiting from subsidies can be subject to a countervailing duty tariff to offset the subsidy and bring the price of the commodity back up to market rates.
Over the years, the two nations have negotiated temporary solutions. In 2006, they signed the Softwood Lumber Agreement that imposed export charges on Canadian producers when prices fell below a given level. The agreement expired in October 2015, giving Canadian lumber producers unfettered access to the U.S. market and leading to a flood of Canadian lumber over the border. The value of lumber imported from Canada increased 23.4 percent from $4.7 billion in 2015 to $5.8 billion in 2016, according to data from the U.S. Department of Commerce.
The tariff is likely to result in higher prices for saw logs, according to Random Lengths, an industry source of market activity, prices, trends and analysis. That could benefit loggers and reduce profit margins for lumber producers.
The Current Market
Many other factors affect the demand for Idaho’s lumber. The major determinant of Idaho lumber production and employment is the level of U.S. housing starts, the biggest use of lumber. Housing construction continues to expand, but still remains considerably below its levels before the 2008 financial crisis, though U.S. housing starts have grown every year since 2009, when they were below half a million. By 2016, they reached 1.18 million — about 25 percent below the average of 1.56 million a year from 1961 to 2006.
Housing starts look likely to rise again this year. Consumers are optimistic, home values continue to increase, mortgage rates have stabilized near historic lows and building permits remain at a pace above 1.2 million.
Another factor bolstering demand is that single-family homes are becoming a larger share of the housing mix, which require more lumber per unit than multi-family housing units. In the first quarter of 2017, the number of new homeowners outstripped that of new renters for the first time in a decade. Homebuilders report increased interest from first-time buyers looking for starter homes. Given the large size of that generation, there are an estimated 87 million potential homebuyers. However, tight credit for new buyers, changing views of ideal homes by younger buyers and overhanging student debt will continue to hamper buying by many millennials who are starting to show interest in buying homes.
Mortgage rates sank to their lowest levels of the year in late May, when the 30-year fixed-rate average dropped to 3.95 percent. By the end of June, they had edged up to 4.12 percent. Actions likely to be taken by the Federal Reserve—raising short-term interest rates and reducing its balance sheet—is likely to boost mortgage rates in coming months. Higher rates make it harder to qualify for a home purchase and make it less attractive to purchase homes, which reduces housing starts and therefore demand for lumber.
One factor weakening demand for U.S.-made wood products over the past two years was the strengthening of the dollar. As the dollar increased in value relative to many other currencies, U.S. products became more expensive for foreign buyers and foreign products grew less expensive for Americans. For example, the Canadian dollar, also called the “loonie,” was worth the same as a U.S. dollar in January 2013 but fell to 75 cents last year. That made Canadian products, including lumber, 25 percent less expensive for Americans to buy.
Also dampening foreign demand for U.S. lumber was China’s economic slowdown since 2015. Before that, China’s rapid expansion and building boom supplied a ready market for U.S. and Canadian lumber producers. The reduced Chinese market is another reason why Canadians increased their sales in the U.S. in the past two years.
With most conditions currently benefiting the lumber industry, softwood lumber prices rose in April to $437 per thousand feet of board, the highest level since 2004 and exceeding its April 2016 price by 13.4 percent, according to the National Association of Home Builders. But lack of expected growth in housing starts and other factors reduced the price to $397 per thousand feet of board by June 23, according to Random Lengths.
Although logging and lumber mills have lost thousands of jobs in recent decades, they continue to play an important role in the 12 northernmost counties of Idaho. They remained the direct source of 7,500 jobs in 2016. In addition, there are thousands of truck driving jobs that exist to carry logs, lumber, chips, sawdust and other wood products. Without the residues from mills and logging, 1,900 paper products jobs in Idaho also would not exist. The College of Natural Resources Policy Analysis Group at the University of Idaho estimated the sale of forest products manufactured in Idaho were $2.67 billion in 2016.
Many communities in northern Idaho continue to rely heavily on forest products to drive their local economies. Logging firms and wood products manufacturers pay 26 percent of all wages and salaries paid in Benewah County. Other heavily timber-dependent counties include Lewis, 25 percent before the closure of the Blue North Forest Products mill last year; Adams, 20 percent; and Boundary, 16 percent.
The Long-Term Decline
Employment in logging and wood products manufacturing has fallen sharply — 57 percent — from its peak levels in 1978 when the industry provided 17,725 jobs—to 7,541 in 2016. Three major factors explain that decline. One is current market conditions, including the failure of housing starts to recover to normal levels and the increased competition from other countries’ wood product manufactures. The other two factors are modernized technology and decreased timber availability from federal forests.
In recent decades, mechanization has decreased logging and mill employment. Heavy machinery has replaced dozens of workers on logging projects. In mills, optical scanners have replaced the green chain lumber delivery system. Computers and robotic devices control the movement of logs through saws and then determines where to transport or store lumber. Mills can produce more lumber in one shift today than they did with two shifts in the 1980s. In 2006, sawmills in Idaho produced 2 billion board feet with 2,607 employees. In 1987, when mills produced the same amount, they employed 5,459.
Mechanization also is changing the skills workers must have. For example, mill electricians used to wire motors — now they must be experts in programming logic controllers, devices that control robotics. Today’s sawmill worker needs to know about advanced manufacturing techniques, boiler operation, industrial mechanics and programmable logic controls.
The U.S. Forest Service manages more than three-fourths of Idaho’s 21 million acres of timberland. In the 1990s, it greatly reduced timber harvests in response to public opinion against clear cutting, and the agency changed its emphasis from timber production to habitat and water protection. In addition, the 1990 passage of the Endangered Species Act increased litigation against timber harvests. Reduced timber availability resulted in the loss of some sawmills including last year’s closures of mills in Kamiah and Orofino. Timber harvests also were prohibited in some forests areas after 1968 as they were designated as wilderness, recreational or wild and scenic river areas. Further decreasing federal harvests was the 2001 Roadless Rule that banned road-building and logging on 58.5 million acres of roadless national forest federal land. In 1989, the Forest Service allowed the harvest of 749 million board feet in Idaho. Ten years later, it allowed 148.
After timber harvests on federal lands fell dramatically, the timber industry increased harvests on private land, but not enough to completely offset the federal lands’ loss.
While about 41 percent of Idaho’s timber harvest came from federal lands in the 1980s, today about 11 percent does, and Idaho’s total timber harvest in Idaho remains below its level in the 1980s.
Kathryn.Tacke@labor.idaho.gov, regional economist
Idaho Department of Labor
(208) 799-5000 ext. 3984