Missing the Forest for the Trees

By Kevin D. Williamson

Thursday, March 18, 2021

 

It is mystifying that free trade remains a policy without a constituency, when there are so many natural constituencies for it — people who live in houses for example.

 

People who live in apartments, too.

 

Join me for a trip down memory lane back to the heady days of 2017, when, under the very best thinking brought to you by the crackpots and game-show hosts of the Trump administration, our government decided that one of the biggest and more urgent problems facing Americans was a splendid supply of inexpensive lumber — specifically, that those wily, inscrutable, nefarious . . . Canadians were selling the stuff too cheap in U.S. markets, thereby undercutting the critical economic position of — oh, I don’t know, Paul Bunyan, I guess.

 

The underlying issue was an esoteric dispute about something called stumpage: Most U.S. timber is harvested on private lands, while most Canadian timber is harvested on public lands (“Crown lands,” as our monarchist neighbors to the north call them), with Ottawa charging a fee that is, in the estimate of the Trump administration, too low. That’s trade protectionism in a nutshell: It’s more expensive and more difficult to do certain kinds of business in the United States than it is in Canada, and the obvious solution for that is to make it more expensive and more difficult to do business in Canada and pass on those prices to American consumers. Ingenious!

 

If you get enough clowns together, a circus is bound to break out.

 

Washington had, in fact, tried to force Canada to up its stumpage through WTO and NAFTA complaints, and lost repeatedly, owing to the fact that the complaints were without merit. Nonetheless, U.S. lumber producers continued calling for tariffs on the foreign devils who had the audacity to compete with them and sell Americans inexpensive building supplies. And the Trump administration obliged, slapping tariffs (because tariffs always are “slapped”) of up to 24 percent on Canadian lumber. The Canadians complained that this was a protectionist effort to “create artificial supply constraints on lumber” that would “drive up prices for [the U.S. lumber lobby’s] benefit at the expense of American consumers” — specifically by raising home prices in the United States.

 

Well played, Canadians.

 

This week, lumber hit record prices in the United States. Here is the Wall Street Journal on Wednesday: “Lumber, one of the biggest costs in home-building after land and labor, has never been more expensive and is more than twice the typical price for this time of year.” The National Association of Home Builders (NAHB) reports that rising wood prices have added some $24,000 to the construction price of a typical home and about $9,000 in additional expenses per apartment unit build. The Journal reports that the NAHB has sent a prayer to Secretary of Commerce Gina Raimondo begging for “immediate remedies to boost production.”

 

If only there were somebody — somebody nearby — to help!

 

Because President Joe Biden is every bit the economic nationalist and America-Firster that President Trump was, the Canadians did not expect any fast or radical change in the protectionist U.S. posture, and none has come to pass. Even with lumber prices at a record high, the Biden administration is continuing the Trump administration’s policy of imposing a punitive sales tax on American consumers (that is what a tariff is) to punish them for buying Canadian lumber — a textbook case of politicians’ putting their political needs over their constituents’ practical needs. It’s pure special-interest politics.

 

Wood is not the only construction material rising in price, and U.S. tariffs on Canadian imports (reduced from 20 percent to 9 percent in December) are not the only reason for the spike in lumber prices. Lumber producers had expected demand to be weak in 2020 and 2021, because of the economic effects of the COVID-19 epidemic, but housing bounced back — and it bounced back fast and high, putting pressure on inventories that had been drawn down. The point isn’t that one policy can in and of itself have catastrophic effects, though it can. The point is that in a healthy and well-integrated market, there are many buyers, many sellers, and many different business models at work, making it less likely that everybody in the market will make the same miscalculation to the same degree and providing greater capacity and incentives for fast and intelligent adaptation to changing conditions.

 

Free trade is about a lot more than cheap flipflops from China.

 

Tariffs and other protectionist policies may disrupt trade in the short term, but they do more important long-term damage by increasing the uncertainty in the market and distorting investment decisions. Physical goods such as lumber are not like financial instruments that can be moved, sold, or reconfigured at the speed of light: It matters where you put your lumber mills and how you plan to move the wood they produce to market. The same is true of trade interventions that are largely or entirely internal: The Biden administration’s sabotage of the Keystone XL pipeline, which would have connected Canadian oil producers (as well as producers in Montana and North Dakota) with U.S. refineries, will cost the American economy and American workers a hell of a lot more than the capital and labor expenditures involved in building and operating the pipeline: There are billions of dollars in secondary investments (beginning at but by no means limited to the refineries to which the oil would have been delivered) that will not happen now, and other entrepreneurs have received a strong signal that big investments in energy infrastructure are unlikely to pay off. Oil investors have always bet on oil prices — and now they have to bet on presidential elections, too. That isn’t the reason gasoline prices are rising right now — but it’s one of the reasons we have fewer options for counteracting their rise.

 

The stupid that presidents do lives after them.

 

These issues get complicated. But here is a handy guide for making such policy decisions in the future: Americans need to be protected from many things — foreign invasions, criminals, novel coronaviruses, etc. We do not need to be protected from low prices and abundance, from high-quality building supplies provided at reasonable rates, even if they are sold by — angels and ministers of grace defend us! — Canadians. Low prices and abundance: That is a policy that might appeal to some people.

 

Those who live in houses and apartments, for instance.