China trade and COVID-19: A one-two punch hitting US hardwood producers

May 27, 2020

By: The Working Forest Staff

The American Journal of Transportation — The trade conflict with China has hit the United States hardwood sector hard and the coronavirus pandemic has made matters that much worse. The Phase I U.S.-China trade deal, inked in January, included potential benefits for United States hardwood lumber exports, but it’s unclear to what extent the domestic industry will benefit from the accord.

According to a report by The American Journal of Transportation, the U.S. hardwood lumber industry relies heavily on exports for its economic health. Over the last ten years, China has become the U.S. hardwood sector’s largest foreign customer, taking about 25% of all boards produced by U.S. hardwood sawmills.

Beginning in early 2018, the Trump administration began three rounds of tariff hikes on $250 billion worth of imports from China, and the Chinese responded with retaliatory tariffs on $110 billion of U.S. products including hardwood and softwood lumber and logs. Chinese tariffs increased to 25% for oak and 20% for cherry and ash. Softwoods were not spared, with tariffs on Southern pine lumber exports to China doubling to 20%.

 Trade War and Hardwoods

The U.S.-China trade war devastated the domestic hardwood industry. The industry saw a 45% drop in U.S. hardwood exports to China in the first three months of 2019. U.S. hardwood exports to China fell by 40% for the whole of 2019, yielding losses to hardwood exporters of $153 million per quarter and leading many U.S. hardwood sawmills to cut production.

Industry representatives wanted hardwoods to be included in the U.S. Department of Agriculture’s 2019 farm relief package. But, while dairy and soybean farmers received federal aid, hardwood producers didn’t.

The coronavirus pandemic only made matters worse, as China sharply reduced forest products imports in early 2020. During January and February, the import value of logs, lumber, pulp and wood chips were down 26% from 2018 and 14% from 2019, according to the Wood Resource Quarterly.

In January 2020, the U.S. and China signed the first phase of a trade deal, under which China agreed to buy an additional $200 billion of U.S. goods over 2017 levels within two years. That total called for purchases of an additional $75 billion worth of manufactured goods, which includes hardwood lumber.

The domestic industry was notably silent about the merits of the trade deal, probably for good reason, although one Republican congressman, who represents hardwood producers in Pennsylvania, was effusive. “The Phase One China Trade Deal is a huge win for the nation’s manufacturing industry and will be particularly beneficial to Pennsylvania hardwood producers,” said Rep. Fred Keller, who represents the state’ 12th congressional district, in a statement.

The congressman’s enthusiasm may well be misplaced. Annex 6.1 of the agreement mentions seven specific categories of manufactured goods included in the agreement—but not forest products. The eighth line item in that section, dubbed “other manufactured goods,” sports a footnote that mentions hardwood lumber.

As with other categories of goods covered under the agreement, there is no mechanism in the agreement for enforcing specific buying levels so it’s unclear how the U.S. could ensure the buying levels spelled out. The mention of hardwood lumber in a footnote indicates that category does not assume a high priority for either party. In any event, even full, good-faith compliance with the agreement doesn’t mean China has to buy any U.S. hardwood at all. The $75 million in manufactured goods could be satisfied elsewhere.

Tariff Exclusions

On the bright side, China issued two tariff exclusion lists for certain U.S. products in February. List I includes seven hardwood products, including oak logs and lumber, cherry lumber, and ash lumber. That’s good news for the industry as far as it goes. But exclusion from tariffs doesn’t equate to purchase orders.

Meanwhile, the pandemic has strained relations between the U.S. and China to the point that President Donald Trump threatened to pull out of the trade deal. Trump and others have politicized the pandemic by trying to blame China for the outbreak and its spread to the U.S. Even Trump’s vaunted personal relationship with Chinese President Xi Jinping appears to be going down the drain.

A group of Republican senators introduced a bill called the COVID-19 Accountability Act, which would authorize the president to impose sanctions on China if it does not provide a full account of the events leading up to the outbreak of the virus. The political fallout is leading some to question whether China is willing and able to go forward with the deal.

In early May, U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer spoke to Chinese Vice Premier Liu to discuss various issues, including implementation of the Phase I trade deal. Both sides “agreed that in spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner,” according to a statement from the Office of the U.S. Trade Representative. A statement by China’s Ministry of Commerce also said both countries are working toward implementing the trade deal.

But Trump threw cold water on those prospects when he told Fox News, “If they don’t buy, we’ll terminate the deal. Very simple.” The president even downplayed the benefits from the trade deal with China, tweeting that it won’t be enough to make up for the economic damage caused by the coronavirus, which he called “the plague from China.”

See more HERE

Your comments.

Your #1 source for forestry and forest industry news.

Built by Sofa Communications