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Thursday, May 11, 2017

House Prices Will Go Up, Trump’s Yelling Timber

Newsflash: A lot of houses are made out of wood.

While Trump supporters worry about whether their wall on the southern border will be built, the President has declared war on Canada and its soft wood industry. Canada, as a target, is as soft as its wood. “It’s not like Canada is going to open up the border and let a whole bunch of Central Americans into the United States. So Canada is a pretty safe target,” says Laura Dawson, director of the Canada Institute at the Woodrow Wilson Center.

Blame Canada

The President has made our neighbors to the north out to be ruthless predators. “People don’t realize Canada’s been very rough on the United States. Everyone thinks of Canada being wonderful and civil. I love Canada. But they’ve outsmarted our politicians for many years, and you people understand that,” Trump told a group of farmers.

The Commerce Department, led by Wilbur Ross, has announced its intent to hit more than $5 billion worth of softwood lumber imports from Canada with tariffs of up to 24 percent, reports Politico. “Just the prospect of a tariff had helped push up lumber prices sharply after the prior U.S.-Canada deal expired at the end of last year,” reports Investor’s Business Daily.

For every $1,000 increase in price, 150,000 consumers are priced out of the market.

Mr. Ross may be a billionaire, but he doesn’t know much about homebuilding, where most imported Canadian wood goes. He told Politico that lumber is a “pretty small percentage” in the total price of a house. I mentioned what Ross said to my homebuilding boss, who replied, “lumber is the highest cost item in building a house other than land.”

In our tiny capitalist corner of the homebuilding universe, Trump’s actions with Canada is now daily conversation as we look to secure lumber bids for 65 houses.

The blasé Mr. Ross says “We do not think the price of lumber will go up by anything like the 20 percent, but there may be some small increase in the price of lumber for a house.”

The National Association of Homebuilders (NAHB) figures that “small increase” will be $3,600 per home, supporting Ludwig von Mises’ contention, “The imposition of a duty on the importation of a commodity burdens the consumers.” The NAHB believes that for every $1,000 increase in price, 150,000 consumers are priced out of the market and the proposed tariff will cause 8,241 homebuilding jobs to be lost.

Dairy, Too

This is not just a fight about lumber. It’s being linked by Ross and Trump to the government protecting Wisconsin’s dairy farmers. “If NAFTA were functioning properly you wouldn’t be having these sorts of very prickly, very unfortunate developments back to back,” Ross said referring to lumber and dairy. “In that sense, it shows that NAFTA has not worked as well as it should.”

So swing state Wisconsin dairy farmers will benefit at the expense of builders and homebuyers nationwide. I asked my boss if U.S. lumber was at all price competitive. His simple answer was, “no.”

As Murray Rothbard explained,

Tariffs [will] injure the consumers within the ‘protected’ area, who are prevented from purchasing from more efficient competitors at a lower price. They also injure the more efficient foreign firms and the consumers of all areas, who are deprived of the advantages of geographic specialization.”

Of course Canada is not without blame, as it places high tariffs on dairy products. “We’re also going to stand up for our dairy farmers,” Trump said in Kenosha, Wisconsin. “Because in Canada some very unfair things have happened to our dairy farmers and others.”

Imposing tariffs is not a regulation reduction.

“Our farmers deserve a government that serves their interests,” he said after signing an executive order asking “for ways the federal government can boost rural development by reducing regulation,” USA Today reports. That reducing regulation part sounds good. However, imposing tariffs is not a regulation reduction.

Consumers on both sides of the border will be losers. “All that a tariff can achieve is to divert production from those locations in which the output per unit of input is higher to locations in which it is lower,” Mises explained. “It does not increase production; it curtails it.”

Less production means fewer goods and fewer jobs. Put simply, less prosperity.