Tariff wars: How good public relations becomes bad public policy

American home builders are feeling the same pain as Western Canadian drywall buyers. Just a few weeks ago, U.S. President Donald Trump ordered an immediate 20% tariff on imports of Canadian softwood lumber. According to Trump, the Canadian Crown land forestry management system is “unfair, so unfair.” This is a matter of some concern for the entire softwood industry particularly in B.C., since a huge proportion of U.S. houses are built with Canadian lumber.

The cost of tariffs is borne by buyers and sellers alike
However, the pain is being felt equally by the U.S. housing and manufacturing industry. In an opinion piece published May 9, 2017 in the Edmonton Journal, Naomi Christensen and Jahangir Valani wrote, “The impact of higher softwood prices in the U.S. is likely to be far more painful than higher drywall prices in Fort McMurray as it will raise overall costs throughout the entire U.S. for new homes, renovations, furniture and mattress box springs. It is not just the cost of a new home that will increase, it is also the cost of almost everything that goes in it.” Prices for Canadian lumber are reportedly higher now than any time since 2004.

That cost increase will put new homes out of the reach of many Americans and result in job losses estimated to be as high as 8,000 and lost wages of $450 million. When Canada imposed punitive tariffs as high as 275% on U.S. drywall imports into Western Canada, the result was notable also. There were many reports of job losses, lost profit margins, and increased costs that had to passed onto consumers. The fact that Finance Canada had to jump into the fray earlier this year to roll back those tariffs reinforces the point made by Christensen and Valini —”Blunt instruments like import duties can quickly become unpopular in the country imposing the duty as negative impacts trickle down to consumers.”

Prices go up but seldom come down
It is curious that drywall prices in Canada have not dropped since Finance Canada stepped in. Continued cross-country surveying by Canadian Contractor suggests that prices remain as high now as they were during the fall of 2016 and into early 2017 when tariffs were extreme. The regional disparity between Western, Central Canada and Eastern Canada also remains, with the West paying as much as 41% more for the identical sheet of drywall as purchasers in Ontario.

Part of the explanation may be the fact that prices for drywall have increased throughout the entire North America market. The National Association of Home Builders (NAHB) in the U.S. reports in Eye on Housing that gypsum prices have increased seven per cent year over year to April 2017, versus annual increases of only 2 and 3 percent respectively in 2015 and 2016. The regional pricing disparity across Canada may be the result of extra shipping costs associated with moving drywall made in Central Canadian plants all the way out west, given that U.S. imports that previously dominated the Western market are facing tariffs, albeit smaller ones than before.

Good public relations makes bad public policy
Trump looked like a champion of industry riding a white horse when he proudly announced the tariffs on Canadian softwood, just as the Canadian Border Services Agency looked like proud supporters of Canadian industry when responding to a complaint from the country’s sole Western drywall manufacturer. However, the true cost of tariffs is always borne by the end user. Ultimately, the housing industry on both sides of the border will adjust their prices to incorporate higher material costs, and simply pass those increases down to the voters who put the decision-makers in office.

Follow John on Instagram and on Twitter for notifications about our newest posts 

 Subscribe to our weekly on-line Newsletter for FREE!!!!