President Trump has said that the word tariff is a beautiful thing. But not everyone agrees with that sentiment.
In March, President Trump imposed a 25% global tariff on all steel, aluminum and some derivative products. This has already started affecting pallet nail prices. Most pallet companies are seeing 5-10% increases for nails although the costs could go higher. International machinery suppliers also face steel tariffs on the metal content of their equipment. The guidelines exempt items processed from U.S.-origin steel or aluminum.
This expansion of Trump’s previous 2018 tariffs closes loopholes and extends the tariffs to cover all countries including those previously excluded, such as Argentina, Australia, Brazil, Canada, Japan, Mexico, South Korea, the European Union, Ukraine, and the United Kingdom. Key reforms include eliminating all alternative agreements, applying strict “melted and poured” standards, expanding tariffs to include key downstream products, terminating all general approved exclusions, and cracking down on tariff misclassification and duty evasion schemes.
The White House stated, “President Trump is taking action to protect America’s critical steel and aluminum industries, which have been harmed by unfair trade practices and global excess capacity.” Will these efforts help save the domestic steel industry? Only time will tell, but steel prices are going up around the world in response to the trade actions.
Some nail providers shipped extra loads anticipating a second round for Trump steel tariffs. The problem is that tariffs can come on and go off at the stroke of Trump’s pen. It is a big risk to over buy. For example, the last time the nail importers went big on orders to accommodate pandemic stresses, many got stuck with over-priced inventory when more production came back online.
How long will these new tariffs stay? It appears that they may be around for a while or at least until the point that public pressure forces the Trump administration to reverse course. Higher nail costs is something that pallet companies need to start factoring into their budgets and pricing models.
Smart companies have been buying up critical supplies and raw materials to have some safety stock. But those supplies are not unlimited. Some nail suppliers have bought extra safety stock. But those supplies are being rationed out to good customers. The reality is that anything made with steel is going to go up.
In response, the European Union has responded by proposing tariffs on a variety of goods including many wood products, such as lumber, veneer, molding, flooring, plywood, OSB, casks, and more. These tariffs would go into effect in April, after a consultation period this month. Pallets and wood boxes (HTS code: 4415.20) are currently not on the list of products that may be hit with a tariff.
One challenge is that the tariffs stack on top of each other. So, tariffs on specific countries usually are added to tariffs on specific commodities, such as the steel tariff. And in addition to tariffs, there may be anti-dumping and counter-vailing duty cases, such as the current ones on Canadian lumber imports.
The U.S. Department of Commerce (DOC) just announced its preliminary decision in the sixth administrative review of the antidumping duty order on softwood lumber from Canada. As expected the rates shot up. Later this fall, anti-dumping duties will likely rise to 20.07% from the existing 7.66% rate. DOC determined duties for Canfor will be 34.61% and West Fraser will be 9.48%. This higher rate for Canfor puts it behind other B.C. producers for its Canadian production. The DOC is scheduled to announce the preliminary decision in the administrative review of the countervailing duty order covering the same 2023 period later this spring. And those rates are expected to more than double as well.
Beyond the steel tariffs, President Trump has also promised to impose a 25% tariff on a large number of goods from Canada and Mexico beginning in early April. Those tariffs have already been delayed once, and we will see what shakes out regarding border security and other trade concerns. These tariffs combined with the rising duties in the Canadian softwood import cases spell trouble for Canadian lumber shipments. Many U.S. pallet producers have already shifted to SYP and domestic supply.
What does all of this mean for U.S. pallet companies? Traditional lumber supply may not be cost effective once all these costs stack. Pallet companies need to be aware of these international trade issues and plan accordingly. Tariffs can come and go at the will of political leaders. But the trade cases are established processes of international law brought by domestic producers in the affected countries. These are completely separate processes that are just converging to affect the market at one time.
What can you do to prepare? Diversify supply sources, look for domestic supply where possible and realize that constrained supply will likely mean rising prices on lumber and nails. Some smart companies have already developed some stockpiles. But these safety stocks will only delay the inevitable. You will need to prep customers for the likelihood of pallet price increases to cover these rising costs.
