WVFA Winter 2018-19

I N D U S T R Y N E W S 16 West Virginia Forestry Association Mountain State Forestry  | Winter 2018–2019 www.wvfa.org OVER THE LAST DECADE, Asian markets have increasingly sought out hardwood lumber and logs from Appalachia. And during that period, hardwood lumber producers in our region have taken advantage of this increasing demand, mostly in China, to provide lumber and logs from our Appalachian forests. Last year, the American Hardwood Export Council (AHEC) confirmed that the US surpassed Russia as the top temperate hardwood exporter to China. Almost all US hardwood manufacturing comes from small family owned companies, and the top producers account for only about 5 percent of output (per AHEC), suggesting that a large number of smaller forest products companies in the US are involved in export trade to the People’s Republic of China. Last year, these shipments included $1.6 billion in hardwood lumber, $800 million for hardwood logs and $260 million for veneer. Housing and furniture markets and even the strong demand for whiskey (stave market) produced a surge in hardwood exports to Asia in 2017 and early 2018. However, that picture changed dramatically as we moved into late 2018. Tariffs placed on Chinese goods imported to the US by the Trump Administration in mid-September led to retaliatory tariffs on a large variety of US goods by the Chinese, including many hardwood products, starting in late September of 2018. A tariff is simply a tax on imports or exports between sovereign states, in this case, the US and China that basically increases the overall cost of those products to manufacturers and consumers. The import tariffs on lumber and logs were part of a larger group of tariffs imposed by the Chinese on goods from the US entering China. Tariffs imposed on hardwood lumber and logs ranged from 5–10 percent, with species and form (logs or lumber) being the primary factor defining what tariff rate is imposed: Following the announcement of possible Chinese tariffs on US hardwood exports in May of 2018, monthly exports of US hardwood lumber fell by more than 41 percent from $150 million in April to less than $88 million in August. Red oak, the largest single species in many Appalachian hardwood stands declined in price by nearly 20 percent between July and September—before the tariffs even kicked in (Fig. 1). In early September, the National Hardwood Lumber Association (NHLA) conducted a survey of sawmills in the US on the direct impacts of the trade dispute with China. An amazing 96 percent of the respondents reported lost revenue ranging from $100,000 to as much as $2 million per responding company. Respondents also expected employment to be impacted, as 93 percent of the respondents reported that they expect to cut employment due to the tariffs, and several companies expressed doubts about company survival if tariffs were to rise to 25 percent on hardwood lumber. In late November of 2018, talks between President Trump and the General Secretary of the Chinese Communist Party, Xi Jinping, led to a slightly softening by both countries on further tariffs. The proposed increase in hardwood log and lumber tariffs from 5 and 10 percent to 20 and 25 percent was “paused” for 90 days. The existing tariffs (generally 10 percent of value) were kept in place by China. Hopefully, further discussions between representatives from both countries will take place in the coming year, focused on the elimination of tariffs and a stronger level of free trade. However, even before the threatened imposition of import tariffs on hardwood lumber, many Chinese companies were reducing or canceling orders and the imposition of new tariffs in September allowed many Chinese companies a convenient excuse to further Update on the Chinese Import Tariff and Its Effect on US Hardwood Exports By J. F. McNeel, WVU Appalachian Hardwood Center Lumber Tariff Log Tariff Poplar lumber 5% Poplar logs 10% Walnut lumber 5% Walnut logs 10% Hard maple lumber 5% Maple logs 10% Oak lumber 10% Oak logs 10% Cherry lumber 10% Cherry logs 10% White Ash lumber 10% Ash logs 10% Hickory lumber 10% Hickory logs 10% Basswood lumber 10% Basswood logs 10%