I saw this in the Morning Ag Clips
and thought I would share with my readers.
It was written by Andrew Muhammad, Professor of Agriculture and Resource
Economics at the University of Tennessee.
American timber industry
crippled by double whammy
Trade war, COVID-19 pandemic,
natural disasters all take their toll on the timber industry
PUBLISHED ON November 17, 2020
WASHINGTON — The forestry sector –
landowners, logging companies and sawmills – have lost an estimated US$1.1
billion in 2020. Devastating wildfires and Hurricane Laura have played a part,
but the COVID-19 pandemic has also contributed to significant losses. If
workers are required to stay home, then no trees will be felled or logs sawed
into lumber.
These losses have been exacerbated
and amplified because of a longstanding trade war that has severely curbed the
sale of U.S. forestry products to foreign markets, particularly China.
I am a professor of economics with
a specialty in international agricultural trade, trade policy and global food
demand. My work at the University of Tennessee Institute of Agriculture is
informed by my nearly 10 years as a senior economist with USDA researching
international trade issues affecting agriculture and forestry.
The US-China connection
Forest product exports in the
U.S., including logs and lumber, were valued at $9.6 billion in 2018, according
to the U.S. Department of Agriculture. Forest products are the third leading
U.S. agricultural export sector after soybeans and corn. In 2018, China
accounted for nearly $3 billion of U.S. forest product exports.
The forest products relationship
between China and the U.S. is complex. The U.S. sells logs and lumber to China;
China uses the logs and lumber to produce finished wood products, such as
furniture and hardwood flooring; and China exports these finished wood products
to the world. Interestingly, the U.S. market is the leading destination for
these exports. In 2018, U.S. imports of wooden furniture and other wood
products from China exceeded $9 billion, according to the U.S. Census Bureau.
This raises an obvious question:
Why doesn’t the U.S. simply make furniture and flooring? The answer is wages.
The wage differential between U.S. and Chinese workers makes it more profitable
to sell logs and lumber to China and then buy back finished wood products.
Since the demand for products like
logs and lumber is directly linked to the demand for finished wood products
like furniture and flooring, any decline in the latter negatively affects U.S.
forest product exports. To say that what happens in China does not necessarily
stay in China is an understatement.
A vulnerable industry takes the
hit
COVID-19 has caused a major
disruption on U.S. forest exports and hindered production because of lockdowns,
business closures and production stoppages. Many of these supply disruptions
started in China, where lumber was being turned into furniture, chairs and
other goods where the pandemic began.
However, another major factor has
been the interruption of demand because of decreased incomes and delayed
purchases by consumers. In the U.S., furniture sales decreased as much as 66%
in April 2020 when stay-at-home orders went into effect. As of August of this
year, U.S. imports of wood furniture and other wood products from China were
down by nearly $2 billion, or 40%.
Consequently, U.S. forest product
exports as of August 2020 had dropped by more than $670 million overall, with
exports to China down by more than $100 million. Geographically, most of these
losses are in the South, a loss of $246 million, followed by the West, with
losses of $183 million, and the Northeast, with losses of $143 million. In
addition, these substantial losses are compounded by a multiplier effect that
go beyond the raw export numbers.
In my state of Tennessee, for
instance, the forestry sector provided nearly 100,000 jobs and had an annual
economic impact of more than $24 billion in 2017, accounting for nearly 3% of
Tennessee’s economy. This, of course, was before the COVID-19 pandemic and the
U.S. trade war, which has devastated the forestry sector. When considering the
related activities associated with the forestry sector, such as trucking or
equipment, total income and job losses are likely double the direct losses from
export sales.
The economic fallout of the
trade war
Prior to the pandemic, the
U.S.-China trade war had already made the forestry sector vulnerable because of
the tariffs that the Chinese government imposed on U.S. timber and the
resulting loss in exports. The industry was in a crisis when COVID-19 hit.
In 2018, President Trump ordered
that tariffs be imposed on Chinese imports, including a 10% tariff on furniture
and related goods from China. In retaliation, the Chinese government imposed
tariffs on many U.S. agricultural goods, including 25% tariffs on U.S. logs and
lumber. This double taxation resulted in nearly halving the export to China –
from $3 billion in 2018 to $1.6 billion in 2019. The trade war, compounded by
COVID-19, has had a major negative effect on forest products export sales –
from timber harvest and lumber production to timber exports – which hurts
working people including loggers and mill workers. Sawmills, in particular,
have taken a serious hit.
How is this related to the current
pandemic? In January 2020, the U.S. and China signed the Phase One Trade
Agreement. Based on the details of the agreement, timber and other forest
product exports to China were expected to reach more than $4 billion in 2020.
The fact that current export sales to China, as of August of 2020, were only $1
billion suggests that COVID-19 is having an even larger impact than the numbers
reveal.
–Andrew Muhammad
Professor of Agriculture and
Resource Economics
University of Tennessee