Trucking could be big loser in Trump’s lumber tiff, NAFTA reset
President Donald Trump’s decision to place softwood lumber tariffs on Canada this week might be an indication that the administration is set for a reset on the North American Free Trade Agreement (NAFTA). It is a gamble that potentially puts billions of dollars in NAFTA trade shipments at risk – much of it hauled by trucks.
In what one Bloomberg analyst called a shot at NAFTA, Trump slapped Canada with tariffs ranging between 3% and 24% in a countervailing duty announcement on Monday. While much of the attention on the U.S.’ trade imbalance has been focused on Mexico, it is Canada that has taken the first shot, and that has increased concern over a broader NAFTA battle.
"It has been a bad week for U.S.-Canada trade relations,” Wilbur, U.S. Commerce secretary stated in a release announcing the tariffs, which are in response to Canada stopping U.S. dairy exports to that country. “Last Monday, it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States. Today, in a different matter, the Department of Commerce determined a need to impose countervailing duties of roughly one billion dollars on Canadian softwood lumber exports to us.”
The immediate impact, of course, is on any carrier that hauls lumber across the border. According to the latest data available from the U.S. Research and Innovation Technology Administration and the U.S. Dept. of Transportation, the value of Canadian wood products entering the U.S. via truck increased to $329.5M in 2014, up from $304.4M in 2013 – an 8.21% increase.
That number has likely increased as in recent years U.S. imports of Canadian lumber made up nearly one-third of the lumber used in homes in 2016. That is a 10-year high as housing starts have been steadily growing since the end of the Great Recession.
National Association of Home Builders (NAHB) Chairman Granger MacDonald blasted the tariffs in a statement yesterday.
“NAHB respectfully disagrees with comments made by Commerce Secretary Ross that the tariffs on Canadian lumber imports into the U.S. will have little effect on the cost of housing. While Ross cannot cite specific consequences regarding this punitive tariff, we can,” he said. “If the 20% lumber duty remains in effect throughout 2017, NAHB estimates this will result in the loss of nearly $500 million in wages and salaries for U.S. workers, $350 million in taxes and other revenue for the governments in the U.S. and more than 8,200 full-time U.S. jobs. Lumber prices have already jumped 22% since the beginning of the year, largely in anticipation of new tariffs, adding nearly $3,600 to the price of a new single-family home.
On a larger scale, though, it is a single line in Ross’ comments that have anyone dealing in imports/exports worried this week. “This is not our idea of a properly functioning Free Trade Agreement,” Ross said, suggesting the Trump Administration is ready to start redoing NAFTA.
Any redo of NAFTA could cause a very bumpy ride for U.S. trucking, which handles $89 billion of NAFTA trade annually.
The Trump tax plan being unveiled today is not expected to include a “border adjustment tax (BAT),” although several of the plans Republicans have floated have included such a tax, so such a proposal should not be considered dead just yet. A BAT would tax imports.
“With tax reform proposals coming this week, every manufacturer and supply chain provider should be watching out for a possible border adjustment tax (BAT) and, if we see it we must quickly root against it,” wrote Mark Dohnalek, president & CEO of Pivot International, a Kansas-based global product development, engineering & manufacturing firm, in a blog post for Supply Chain Management Review. “Why? Because there is no point to the rollbacks and regulation relief only to be hit with a BAT that would surely stunt the economy. If a BAT is enacted it would be a genuine case of taking one step forward and two steps back.”
Don Ake, an analyst with FTR, wrote in a recent blog post about the impact NAFTA renegotiations could have on trucking.
“For the most part, NAFTA logistics has worked well for the benefit of the three countries involved,” Ake wrote. “The optimal logistics routes and systems have been established and utilized. Some products cross borders multiple times before sale. Changes to this system, and unforeseen consequences, could disrupt supply chains and cause major issues and problems for the transportation industry.”
Ake went on to note that redoing trade agreements with China and other countries could create “the potential for multiple trade conflicts, and even trade wars, if negotiations turn sour. This would have a deleterious impact on the economy, exports, and freight,” he wrote.
In his statement, Ross noted that since Trump took office, the U.S. has tried to reach a settlement with Canada but it felt there was no choice left but to levy the tariffs.
“The biggest impact of the Trump presidency right now is a pronounced increase in uncertainty,” Ake said. “It’s like playing a whole new card game for the first time and being dealt five wildcards. There are so many new factors in play which could have a significant impact (either way) on the economy and freight markets. If all of Trump’s economic plans work brilliantly, the economy would grow at rates not seen in years. Conversely, if Trump makes some big mistakes, the negative economic impact could be severe. Therefore, this is now an environment with a much higher upside and much deeper downside than before the election.”
A trade war with Mexico was a distinct possibility following Trump’s election, but one with Canada wasn’t on many people’s radar. Trucking may now be staring at the downside.