Lumber: A 29 Percent Tax
"If the protectionists had the power to give legal effect to their convictions, they would reduce all men to the snail’s life of utter isolation." --Frederic Bastiat
Count the term "free trade" as another casualty of political rhetoric and chicanery. Free trade no longer seems to mean what the words appear to strongly imply--which is a kind of trade where neither party is interfered with by government meddling.
In a classic Orwellian "newspeak" twist, the current administration calls itself in favor of free trade and declares itself for open markets. What this has come to mean, however, is trade on the government’s terms, with protections in select industries where government feels they are needed.
First, we see new protections implemented to protect the steel industry from foreign competition. It is ironic that America is often derided by some critics for its rough-and-tumble capitalism--hence, these critics maintain, the need for government interventions of every kind.
Reality, however, is quite different; America’s brand of capitalism seems to enjoy freshening the wells of failure. In America, if you’re big enough and rich enough, or if you have a world-class lobbying team, you can get the American taxpayer to underwrite your failures.
Is this the beginning a new political trend, or just more of the same?
American softwood lumber producers are the latest sob story. They have sought and received relief from the nanny state in the form of new tariffs. As The Washington Post reports, "The U.S. Department of Commerce today set duties as high as 29% on many shipments of softwood lumber from Canada." If Canadian lumber cost $100 yesterday, it costs $129 today. If you’re an American producer of softwood lumber, you are clicking your heels.
Why do we need to give this gift to U.S. producers? "The U.S. government has accused Canada of ‘dumping’ subsidized softwood lumber in the United States," the Post reports, "that is, selling it at illegally low prices." Ah, so they are giving American consumers softwood lumber at too low a price. What a crime; we consumers should all be so lucky to have such crimes perpetuated against us.
Canada, for its part, denies that it subsidizes its exports. Really, it shouldn’t matter whether it does or not. Let us say that the Canadian government is subsidizing lumber exported to the U.S. Think about what that would mean. It would mean, essentially, that the Canadian government is taking its taxpayers’ money and giving it to American purchasers of lumber. Canadian taxpayers, it seems, would be a no brighter bunch than their kin to the south.
American producers say these subsidies are unfair, because the playing field is not level, so to speak. Here we have our fellow Americans--friends, family, countryman--working diligently to produce lumber, and here comes Canadian competition with pockets allegedly lined with subsidies. If true, these subsidies on lumber would give Canadian companies quite a cost edge.
From an American producer's point of view, it does seem unfair. But guess what? Life is not fair. The playing field is never level. I suppose it also unfair that the Canadians have more trees than we Americans do. In a similar vein, it may also seem unfair that the New York Yankees spend so much more money than the Kansas City Royals.
Is it now part of the U.S. government’s role to mitigate envy and satisfy petty jealousies, like a mother watching over competing 2-year-olds? Is it now part of a new American creed to wipe out unfairness? One can see the headlines now. It would be called the War on Unfairness and would take its place among other "successful" campaigns, such as the War on Poverty, the War on Drugs, and the War Against Terrorism.
Canadian exporters ship $6 billion worth of softwood lumber to America annually, the Post reports. Lumber is obviously important to homebuilders, and this new duty will be collected at their expense. Is it fair that homebuilders--and ultimately homeowners--pay more than they would otherwise have to pay for lumber? These homebuilders and homeowners, as a group, probably love their country just as much as the next guy, but, for whatever reason, they preferred to get their lumber from the great north country.
U.S. mills say that they are being put out of business by Canada’s low-priced goods. The loss of U.S. mills will mean the loss of American jobs--which is always painful for those whose jobs are being lost.
Perspective is important in these kinds of matters. Job losses are part of the healthy transitions that mark any market economy. Healthy growing economies destroy jobs, but they also create many more jobs. America has lost thousands of farm jobs and manufacturing jobs over the last hundred years, for example. But, the American economy has also created jobs in industries that could barely be imagined decades ago. If we had adopted strict protectionist measures aimed at preserving current jobs at the dawning of the Republic, America would never have become more than a poor agrarian society.
While low-priced Canadian lumber will hurt and shrink the U.S. lumber industry, others will certainly gain. Among those that gain are the homebuilders and homeowners, and any other purchasers of lumber. Also, consider that there are other industries where Americans compete comparatively better than international firms. Investment and people will naturally flow to those markets.
The mix of American businesses is constantly evolving and changing. Businesses fail all the time, for a wide variety of reasons. Conversely, new businesses are started, and smaller successful businesses can grow into much larger ones in the future. The fortunes of businesses shift, when left unfettered, in response to consumer demands. With each passing bailout and protectionist measure, more and more of the edge of American industry is dulled.
What incentives do lumber producers have to make those difficult and tough decisions that businessmen must make in serving the unyielding demands of consumers? They don’t have to be the best; they don’t even have to be particularly good. Let us assume that you were playing poker and knew that if you should run a little low on chips, the house would come by and give you more to stay in the game. Wouldn’t this affect how you play? Sure, you would still try to win, but the pain of failure would have been blunted. You would probably play in more hands than you should and take chances you might not otherwise have taken. You would probably spend more time and effort making sure that you had a cozy relationship with the house manager. Why should it be any different for lumber, or steel, for that matter?
On matters of trade, no more pleasurable reading can be found than the wonderful essays in Frederic Bastiat’s book Economic Sophisms. Bastiat’s great merit is his focus on looking at economic questions from the point of view of the consumer. With just this approach, great clarity is achieved in understanding international trade. Bastiat’s maxims still speak to us as clearly and correctly as they did over 150 years ago.
Bastiat observed that "When a product--coal, iron, wheat, or textiles--comes to us from abroad, and when we can acquire it for less labor than if we produced it ourselves, the difference is a gratuitous gift that is conferred upon us." It is such a commonsense observation that one is inclined to take it for granted, except that so many people still refuse to grasp it.
Bastiat wrote that "consumption is the end, the final cause, of all economic phenomena, and it is consequently in consumption their ultimate and definitive justification is to be found." Bastiat believed that all of the economic sophisms he wrote about had a common root in their "disregard of men’s interests in their capacity as consumers."
Using Bastiat’s approach of looking at the consumer, you see very clearly how absurd the whole question of tariffs really is. Tariffs are merely, in Bastiat’s words, "the sacrifice of the consumer for the producer." There is no scenario in which consumers gain when tariffs and protectionist measures are used.
In summary, these new duties on lumber are simply bad for American consumers. They amount to a 29-percent tax on lumber. These duties may save the American lumber industry. On the other hand, these producers, having enjoyed the benefits of their lobbying efforts, will not soon wean themselves of this protection. They are now dependents, and the American taxpayer is being forced to support them.