Headwinds in Global and Domestic Markets
Tariffs and market forces pose challenges for forest products industry
By: Brady Hummel
July 25, 2019
July 25, 2019
Photo by Stephen B. Morton
At home and abroad, the forest products industry faces challenges to its future growth prospects from instability and changes in the market.
The Trump Administration has imposed widespread tariffs on America's trading partners importing raw materials and products from our country. Tariffs have a similar effect as a tax, so raising tariffs on imported goods increases costs to U.S. producers and consumers. These tariffs have affected the forest products industry and have shifted the outlook for its future. Exports of paper and wood products account for 15 percent of the industry's total annual sales¹, and approximately 110,000 jobs at mill and logging operations, many of which are in Georgia, in the U.S. are supported by foreign demand for exports¹.
"The health of the U.S. paper and wood products industry depends on strong export markets," said Jake Handelsman, senior director of international trade at the American Forest & Paper Association. "It is critical for the industry to achieve unrestricted access to international markets and to have a level playing field among international competitors through the elimination of both tariff and non-tariff barriers."
In retaliation for American tariffs, many countries are responding in kind. Canada has imposed a 10 percent tariff on $850 million in imports of paper products and over $100 million in imports of plywood and other veneer. Turkey has imposed a 20-50 percent tariff on $180 million of kraft linerboard and other paper and paperboard, and a 30 percent tariff on $90 million of wood chips and other wood residuals. Through the escalating trade war, China has imposed 10 percent tariffs on $3 billion in paper and converted paper products and on $4 billion in wood products; a five percent tariff on $2.5 billion of wood pulp, paper and paperboard imports; and another five percent tariff on $3 billion of wood imports¹.
In 2018, while U.S. exports of paper products to China grew faster than imports, U.S. imports of wood products from China rose 4.2 percent while exports were down 10.1 percent¹. And the industry has been indirectly affected as well because of the widespread practice across industries of shipping tariffed products in corrugated boxes.
There are challenging trends in the domestic market, as well. "Changes in the composition of the total housing stock show lower aggregate demand for lumber from new household formation," said Dr. Jeff Rosensweig, associate professor of finance and director of The Robson Program for Business, Public Policy and Government at Emory University's Goizueta Business School.
Multi-unit housing starts, which typically require less lumber than single-unit houses, have increased to about 30 percent of the total housing stock². And the median size of a single-unit home has decreased over the past five years from 2,500 sq. ft. to 2,300 sq. ft.² "We have also seen a drop in hardwood lumber prices corresponding to the same period that houses have started to shrink," Rosensweig said.
That change in the housing stock is being driven in part by demographics. "The continued shift towards in-town living will drive demand for hardwood lumber down, as younger generations prefer community living or delay purchasing a home," Rosensweig continued. "And the aging of the Baby Boomers, which is reaching the point over the next 10 years when the bulk will be retired, implies that millions of people will eventually start moving into assisted living facilities, which won't need as much lumber as new homes."
Growing the demand for forest products in both domestic and global markets is critical to the industry's ability to grow and thrive not just in the short term, but for the coming decades.
¹) American Forest & Paper Association
²) Dr. Jeff Rosensweig
The Trump Administration has imposed widespread tariffs on America's trading partners importing raw materials and products from our country. Tariffs have a similar effect as a tax, so raising tariffs on imported goods increases costs to U.S. producers and consumers. These tariffs have affected the forest products industry and have shifted the outlook for its future. Exports of paper and wood products account for 15 percent of the industry's total annual sales¹, and approximately 110,000 jobs at mill and logging operations, many of which are in Georgia, in the U.S. are supported by foreign demand for exports¹.
"The health of the U.S. paper and wood products industry depends on strong export markets," said Jake Handelsman, senior director of international trade at the American Forest & Paper Association. "It is critical for the industry to achieve unrestricted access to international markets and to have a level playing field among international competitors through the elimination of both tariff and non-tariff barriers."
In retaliation for American tariffs, many countries are responding in kind. Canada has imposed a 10 percent tariff on $850 million in imports of paper products and over $100 million in imports of plywood and other veneer. Turkey has imposed a 20-50 percent tariff on $180 million of kraft linerboard and other paper and paperboard, and a 30 percent tariff on $90 million of wood chips and other wood residuals. Through the escalating trade war, China has imposed 10 percent tariffs on $3 billion in paper and converted paper products and on $4 billion in wood products; a five percent tariff on $2.5 billion of wood pulp, paper and paperboard imports; and another five percent tariff on $3 billion of wood imports¹.
In 2018, while U.S. exports of paper products to China grew faster than imports, U.S. imports of wood products from China rose 4.2 percent while exports were down 10.1 percent¹. And the industry has been indirectly affected as well because of the widespread practice across industries of shipping tariffed products in corrugated boxes.
There are challenging trends in the domestic market, as well. "Changes in the composition of the total housing stock show lower aggregate demand for lumber from new household formation," said Dr. Jeff Rosensweig, associate professor of finance and director of The Robson Program for Business, Public Policy and Government at Emory University's Goizueta Business School.
Multi-unit housing starts, which typically require less lumber than single-unit houses, have increased to about 30 percent of the total housing stock². And the median size of a single-unit home has decreased over the past five years from 2,500 sq. ft. to 2,300 sq. ft.² "We have also seen a drop in hardwood lumber prices corresponding to the same period that houses have started to shrink," Rosensweig said.
That change in the housing stock is being driven in part by demographics. "The continued shift towards in-town living will drive demand for hardwood lumber down, as younger generations prefer community living or delay purchasing a home," Rosensweig continued. "And the aging of the Baby Boomers, which is reaching the point over the next 10 years when the bulk will be retired, implies that millions of people will eventually start moving into assisted living facilities, which won't need as much lumber as new homes."
Growing the demand for forest products in both domestic and global markets is critical to the industry's ability to grow and thrive not just in the short term, but for the coming decades.
¹) American Forest & Paper Association
²) Dr. Jeff Rosensweig
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