The U.S. hardwood industry has taken a serious hit due to lost market share resulting from President Trump’s trade war with China. Before the trade conflict, one in every four hardwood boards produced in the United States went to China. Over the last year, total U.S. hardwood exports to China have fallen by 40% as the Chinese imposed tariffs on U.S. goods in response to American tariffs. Many U.S. hardwood sawmills have cut production, taken excessive downtime or are teetering on having to close their doors.
The Hardwood Federation recently issued a press release warning about the dire consequences for the U.S. hardwood sector if the trade war lingers. Dana Lee Cole, the executive director of the Hardwood Federation, stated, “The U.S. Hardwood Lumber industry has a heavy reliance on export markets for its survival, and is being devastated by the ongoing trade dispute with China. Domestic mills have suffered sharp declines in export sales. Operations have been shuttered. Jobs lost. Communities, reliant on good paying hardwood jobs, ruined.”
According to the Hardwood Federation, the U.S. hardwood products industry is an important contributor to the U.S. economy, adding $348 billion to the economy, overall. Additionally, hardwood producers and manufacturers directly support more than 685,000 jobs in 25,000 facilities, generating $35 billion in annual income.
Cole warned, “If these tariffs continue in this current application, our logging and sawmill production will disappear as an industry sector, and the secondary jobs and manufacturing companies depending on loggers and sawmill operations will quickly follow.”
The hardwood industry recently sought inclusion in agricultural assistance offered by the U.S. government for farmers affected by slumping exports to China due to the tariffs. But the U.S. Department of Agriculture decided not to include forest products despite a serious push from the industry. Hardwood officials said they would keep seeking assistance.
One piece of good news is that U.S. Trade Representative Robert Lighthizer recently announced on the Fox Business channel that in the trade deal being worked out with China that hardwoods is being included in the agricultural purchases being offered by Chinese officials.
Cole cautioned, “It is important to remember that there is still much to be done…the final deal still needs to be formally signed and details about how Chinese purchases of hardwoods will be facilitated need to be determined. This could come as early as January, but there is no firm date. There is also the question about when orders will start to flow and when shipments will begin. This is a tremendous first step, but we still will need to stay alert and focused on making sure this continues in a positive direction.”
CNN recently ran a report on the impacts of the trade war and interviewed hardwood producers Baillie Lumber Co. and Wagner Lumber Co. Many U.S. hardwood sawmills are cutting back capacity. Some are looking to cut more industrial grade to pick up the slack. But that can only last so long because hardwood mills don’t make their money off low-grade markets.
In November and December 2020, President Trump indicated that phase 1 of a trade deal is close. The Chinese have already backed out of one deal. But this time, President Trump indicated that he believes there is a strong likelihood that a deal will get finalized. One reason is that the tariffs seem to be having some effect on the Chinese economy.
Mike Snow, the executive director of the U.S. Hardwood Export Council (AHEC) warned that it isn’t time to start popping the Champagne yet. He said that China has yet to confirm any details. And both sides have talked about being close to deals in the past that have fallen apart. He said, “We still have a long road ahead, and it will be difficult to get back market share that is lost to Russia, Thailand and other sources.”
Some of the problems with decreasing Chinese demand have little to do with the tariffs. Snow explained that Chinese law on new construction is changing to require more units to be turnkey versus just an empty shell. This has led to a race to the bottom in terms of materials used in those buildings. Families struggling to afford housing may have to skimp on interiors if it all has to be done at once, especially for investment properties. This has led some to consider vinyl flooring, plywood cabinets and other hardwood substitutes.
Overall, though Snow is still optimistic about the potential for Chinese demand to rebound somewhat. He pointed to the high levels of construction on the Chinese coasts. One clear reality is that the hardwood sector has lost a lot in the trade war and is likely to get little out of any deal that it didn’t already have. The U.S. hardwood sector already had access to Chinese markets, and there is little technology transfer to worry about with lumber technology.
What does this mean for the forest products sector? It is a good sign after months where it appears no deal would come before the 2020 presidential election. The fact that China has been willing to make some concessions suggests that the tariffs are putting pressure on Chinese leaders to make some sort of deal to stop further tariff escalation. But at the same time, the importance of U.S. consumers to China’s economy may be somewhat overblown too. Of course, how both sides live up to any final deal and monitor compliance has yet to be seen.
The U.S. hardwood sector has been hit particularly hard by the Chinese trade war, and it stands little to gain unless new purchases far exceeds what the Chinese bought in the past. Traditionally, the U.S. hardwood sector has been a key part of the U.S. pallet industry. It remains to be seen what lasting effects the current trade impasse will have on the cant or board supply. Everybody is just hoping some degree of normal returns to the market sooner, rather than later.
