San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Wednesday, April 26, 2017

Trump's Timber Tariff

King Donnie signed an Executive Order yesterday imposing a 20% tax on lumber imported from Canada.  I don't recall King Donnie ever speaking about his now obvious hatred for Canadian lumber producers.  He has been quite adamant about his hatred for the Chinese and the fact that they make billions of dollars worth of goods that Amerikan citizens selfishly and unpatriotically like to purchase.  He has also been quite adamant about how he is going to somehow force the Mexicans to pay for the wall he is going to build by putting a 20% tax on imports from Mexico.  King Donnie, being the economic genius that he is, has not yet explained how it is that forcing Amerikan consumers to pay a 20% tax somehow fulfills his promise to force Mexico to pay for the construction of the border wall.  So it came as quite a surprise to me when our King slapped a 20% tax on Canadian lumber yesterday.
The dispute with Canadian lumber companies goes back to the mid 1980s.  About 75% of the lumber produced in the Socialist Democracy of Amerika (SDA) is grown on private land.  The situation is different in Canada.  The various provinces own 75% of the timber in Canada, with less than 10% of the lumber produced coming from private holdings.  The public ownership of Canadian lumber products is what creates the problem that King Donnie believes he solved yesterday. 
CNBC reported the new tax yesterday as follows, "A new duty imposed by the U.S. Commerce Department on Canadian softwood lumber is designed to level the playing field between Canadian and U.S. lumber producers, and just the anticipation of it has pushed lumber prices higher by about 22 percent since the start of this year.  The Trump administration argues that government subsidies for Canadian lumber are unfair. It's great for U.S. lumber producers, not so great for U.S. homebuilders, who inevitably pay the price. 'NAHB is deeply disappointed in this short-sighted action by the U.S. Department of Commerce that will ultimately do nothing to resolve issues causing the U.S.-Canadian lumber trade dispute but will negatively harm American consumers and housing affordability,' said NAHB Chairman Granger MacDonald, a homebuilder and developer from Kerrville, Texas. The cost of this new duty will increase Canadian lumber costs for U.S. customers by 6.4 percent, according to the National Association of Home Builders, and that will be passed on to homebuyers. The NAHB estimates it will increase the price of an average new single-family home by $1,236."
The CNBC report correctly argues that Donnie's new tax will be paid by the consumers in Amerika, not the Canadians as Donnie mistakenly believes.  I have no reason to dispute the estimates made by those in the home building business so I will grant that Donnie's new tax will raise the cost of the average new home by $1,236.  That price will be paid directly by consumers who purchase new homes.  The tax will also be paid by anyone who purchases lumber for any reason.   Given the fact that Amerikan consumers will pay this tax, thus hurting the very Amerikans Donnie believes he is protecting, why was Donnie compelled to create it?
The argument given by our King for creating new taxes out of thin air is that it is necessary to enact tariffs in order to punish foreign governments that are subsidizing their domestic industries.  In this case King Donnie believes that the Canadian government is subsidizing lumber production.  How does he arrive at that conclusion?  Because the Canadian provinces own the land the timber grows on, allegedly reducing the costs associated with growing the lumber by spreading the costs of production among all of the taxpayers in the province.  Donnie does not describe how he arrived at the 20% tax for imported lumber.  He presents no calculations that prove that Canadian lumber subsidies amount to a 20% reduction in overall production costs.  Indeed, he presents no arguments proving that public ownership of timber in any way reduces production costs.  He specifically ignores the possibility that Canadian lumber is cheaper because the Canadians are better at producing it.  I suspect that he just picked a number out of the air, probably motivated by what the powerful SDA lumber lobby suggested.  One thing is for sure.  When the 20% tax is added to the cost of Canadian lumber you can know for a fact that SDA lumber will suddenly be cheaper than Canadian lumber.  That is Donnie's stated goal in all of his tax policies; namely, to create Amerikan jobs.
Forbes weighed in on Donnie's new tax with several poignant comments.  Allow me to quote some of them here:  "Once again we're seeing that Donald Trump's one great blind spot is over trade. He simply doesn't get that the point and purpose of trade is the imports we ourselves buy. And of course we want those imports to be as cheap as possible because that makes us richer. Thus if the Canadian hordes start offering us cheap lumber we should say thank you and buy lots of it. For that's what makes us richer, gaining cheaper inputs into whatever it is we use lumber for....how are we made better off by imposing a 20% tax upon our own purchases?...Think through that allegation there. Canadian people pay taxes, which the Canadian government uses to subsidise lumber, which means that houses in the United States are cheaper. You can see why the Canadian hordes might not be all that keen on this but why on Earth would Americans object?"
Indeed.

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