Against the Grain: How Lumber Quotas Hammer Home Buyers

This article appeared in the Wall Street Journal on August 11, 2000.
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At the GOP convention last week Republicans stressed the need torevitalize flagging efforts to expand world trade. It's a worthygoal, but it won't be realized unless the next occupant of theWhite House, whoever he is, can sell Americans on the benefits ofopen markets. A promising approach to making that sale is nowtaking shape, surprisingly enough, in the midst of one of America'soldest and most intractable trade disputes.

The long-running feud with Canada over softwood lumber is theU.S.'s largest single trade dispute, with its largest tradepartner. The stakes are huge: Canadian firms export some $7 billionworth of lumber annually to U.S. customers. In other words, thedollar value of U.S. lumber imports from Canada is almost equal tothat of its carbon steel imports from the whole world.

For nearly two decades, the lumber dispute has followed adrearily repetitive pattern. First, some U.S. lumber producersaccuse their Canadian rivals of receiving government subsidies --in particular, they allege that the Canadians pay unfairly low"stumpage" fees to harvest timber from Canadian Crown lands. TheCanadians respond that their timber pricing policies are notmarket-distorting, and they generally win on the technical merits-- whether at the U.S. Commerce Department, which investigatessubsidies, or before special binational panels that review CommerceDepartment decisions. Despite losing those battles, the Americanlumber lobby usually ends up winning the war: Its relentlesspolitical pressure forces Canada to accept some form of traderestriction just to buy commercial peace.

The latest "truce" is the Softwood Lumber Agreement, or SLA,which sets export quotas for Canada's largest lumber-producingprovinces and then imposes punishing surcharges on above-quotashipments. That agreement, signed back in 1996, is due to expire onMarch 31, 2001. And so, inevitably, American and Canadian lumberproducers are girding for battle once again. But this time a newbelligerent has entered the fray, and its appearance on the scenepromises to break the dismal cycle of protectionism. This time,American lumber users are making their voices heard.

Frustration with years of costly trade barriers has finallystirred the American victims of those barriers into action. A broadcoalition of lumber-using interests -- including the NationalAssociation of Home Builders, the National Lumber and BuildingMaterial Dealers Association, Home Depot and affordable housinggroups -- has banded together to demand that the SLA be allowed toexpire next year and that no new restrictions be erected in itsplace. Its pitch is that free trade will benefit not onlylumber-using businesses but millions of American home buyers aswell.

The facts support the lumber users' position. A recent CatoInstitute study, which I co-authored with Cato colleague MarkGroombridge and IMF economist Prakash Loungani, finds that traderestrictions have jacked up the price of lumber between 20% and35%, or $50-$80 per thousand board feet. As a result, the cost ofthe average new home is between $800 and $1,300 higher than itwould be if free trade prevailed. And according to an analysis bythe Bureau of the Census, every $1,000 increase in housing pricesmeans that an additional 300,000 families are unable to purchase ahome. Trade restrictions thus act as a regressive tax that keepsthe dream of homeownership out of reach for many lower-incomeAmericans.

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The cost of the average new home is between $800 and $1,300higher than it would be if free trade prevailed.

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Yes, barriers against Canadian imports do benefit some U.S.lumber producers and their workers. But in 1999 there were only217,000 American jobs in logging and sawmills. Compare that to510,000 jobs in lumber-using manufacturing industries, 744,000 jobsin the wholesale and retail lumber trade, and more than 4.7 millionjobs in homebuilding. If jobs are the currency of trade politics,let it be noted that lumber-using workers outnumberlumber-producing workers by better than 25 to 1.

The organization of lumber users into an active coalition haswrought a dramatic change in the politics of the lumber dispute.Protection-seeking lumber producers no longer enjoy a lobbyingmonopoly at home. Now when they prowl the halls of Congress or theU.S. Trade Representative office, they keep running into theirdisgruntled customers.

And not only are there new participants in the debate, the termsof the debate have shifted as well. The traditional battle linescentered on the question of "fair trade": Is there a "level playingfield" or do Canadian firms compete unfairly? Analytically, theCanadians have always had the better of that argument. While theCanadian system of government-owned forests leaves much to bedesired from a free-market perspective, there is no compellingevidence the system gives Canadian lumber producers any artificialor unfair advantage over their rivals to the south. Nevertheless,the whole controversy put the Canadian side -- and free trade -- onthe defensive.

By redirecting attention away from alleged subsidies and ontothe issue of affordable housing, the new lumber-using lobby hasturned the tables and put its opponents on the defensive for achange. After all, who could be against removing barriers tohomeownership? This seize-the-moral-high-ground strategy hasalready begun paying dividends for the free-trade cause. Over 100members of the U.S. House of Representatives have signed on asco-sponsors of a resolution calling for termination of the SLA; acompanion resolution is picking up steam in the U.S. Senate. Thislevel of congressional support for free trade in lumber isabsolutely without precedent. What is even more striking is theextent to which that support draws from outside the usualfree-trade ranks: Of the 116 current House co-sponsors, 38 votedagainst permanent normal trade relations with China.

It's far too early to tell how the latest round of the softwoodlumber dispute will ultimately be decided. The vested intereststhat profit from protectionism will fight back hard; don't countthem out yet. But already the American lumber-using coalition haswon an important victory: It has altered the political landscape ofa major trade issue. There is a lesson in that success for thelarger free-trade cause: A populist, pro-consumer campaign for openU.S. markets can sell on the home front.