America’s duties on Canadian softwood are likely to have minimal impact on the US market unless buyers treat the two countries’ lumber as substitutes, with economists finding prices sat close enough for that in only 212 weeks between 1995 and 2020. That is according to Yifei Zhang and Barry Goodwin of North Carolina State University, who tracked prices over 1,321 weeks for Canadian spruce-pine-fir and American southern yellow pine.
“When price differences are substantial, the consumption incentive shifts toward the lower-cost product,” the pair wrote in Forest Policy and Economics. Within the 3.4 per cent band, the two prices moved almost in lockstep, with the link between them weakening sharply as the gap widened.
Price shocks inside the band faded within six weeks in most cases, whereas outside it they showed no sign of settling after 12 weeks. The economists read that quick recovery as buyers switching between the two woods, pulling their prices back into line.
It comes as a coalition led by Canada’s federal government appealed a US court ruling last week that upheld how Commerce tests for hidden dumping in Canadian lumber. Substitution is an important competition factor when the US International Trade Commission assesses whether Canadian imports injure American mills, the economists wrote.
Across the period, Canadian spruce-pine-fir averaged US$353.29 per thousand board feet and southern yellow pine $351.82, though the American wood swung more in price. The Canadian price came from spruce-pine-fir shipped out of Prince George, British Columbia, with duties included where applicable, and the American price from mills in Texas, Arkansas, Oklahoma, and Louisiana.
Imports from Canada fell sharply after the 2006 Softwood Lumber Agreement took effect, with the pair finding that policy change had the most significant impact on Canadian shipments. That agreement capped Canada’s share of the US lumber market at 34 per cent and taxed exports when prices fell below $355 per thousand board feet.
Canada is the primary exporter to the United States, the largest producer, importer, and user of lumber, the economists noted. Builders surveyed by the National Association of Home Builders told the commission that the two woods are “sometimes interchangeable,” which the economists said likely reflects price differences.
Spruce-pine-fir is lighter and less prone to warping, making it the builders’ pick for wall framing, whilst denser southern yellow pine is used for trusses, beams, and joists. It makes up 86 per cent of softwood lumber imports from Canada, and Canada produces no southern yellow pine commercially.
Nearly all of Canada’s forestland is publicly owned, at 93.3 per cent, compared with 42 per cent owned by federal and state governments in the US. American mills argue that leaves Canadian stumpage fees, the price of the right to harvest timber, set outside a competitive market, a claim the pair said their study does not set out to confirm.
The dispute has spanned five rounds since the first opened in 1981, with the current round, known as Lumber V, ongoing since 2015. Three short-term settlements came and went along the way without a lasting resolution, the economists noted.
Economists at the Montreal Economic Institute estimated in 2022 that the cost of trade restrictions falls 26 times more heavily on Americans than on Canadian producers. Other economists the pair cited found that import barriers lift American producers’ welfare by less than consumers lose.
Zhang and Goodwin wrote that their method can be extended to other lumber species from other regions on both sides of the border. US trade negotiators could consider price gaps between the two woods when setting the threshold for future duties on Canadian lumber, the pair concluded.
