Steel and timber prices are sky-high, and Trump’s tariff lifting could help | Business
LOUISVILLE, Ky. (WDRB) – The U.S. economy is so hot that the supply of key materials can’t keep up with growing demand – causing shortages and price spikes in everything from computer chips and copper to chlorine.
President Joe Biden has leverage he could theoretically pull to help cool the prices of wood and steel, as they are still subject to Trump-era tariffs.
Still, it could come at a significant cost: undermining Biden’s efforts to rebuild domestic manufacturing and create jobs in the country.
This choice underlines the difficult position in which Biden finds himself. Despite what his detractors may say, he has no magic wand to immediately stabilize prices. And some of the problems can be attributed to the unique nature of the crisis: a voluntary shutdown of the economy followed by a strong rebound.
Trump’s tariffs on timber and steel, introduced in 2017 and 2018 respectively, were intended to protect US industry and jobs from alleged unfair trade tactics – and the steel industry says they have been key to keep the area afloat during the pandemic. But the logic of tariffs is undermined not only by supply shortages, but also by breathtaking price spikes.
Despite a 20% drop in the past few weeks, random length lumber futures are still up over 400% from their April 2020 low. Lumber prices have soared so much that they cause remodeling nightmares and create even more shock in the booming real estate market.
Soaring lumber prices are making new homes an average of $ 36,000 more expensive, according to an analysis by the National Association of Home Builders.
The 9% tariffs on Canadian lumber are not the cause – the housing boom and the shutdown of sawmills have resulted in shortages – but these levies are not helping. The Commerce Department has offered to double those rates, but the housing industry warns the move will make matters worse.
“It doesn’t make much economic sense if the problem is that domestic production is insufficient,” said Robert Dietz, chief economist at the NAHB. “It seems clear. It’s of the Adam Smith type,” he said, referring to the Scottish economist known as the father of capitalism.
Likewise, the prices of hot-rolled coil steel in the United States, the most produced finished steel product, have climbed nearly 270% since the low last August and hit a record high of $ 1,616. per ton Friday, according to S&P Global Platts. Before this boom, the previous high was $ 1,100 in 2008.
Trump’s import-restricting tariffs and quotas, imposed in 2018 to combat steel dumping from China and others, only add to the pressure.
“Steel prices are always in the stratosphere,” said Phil Gibbs, director of metals equity research at KeyBanc Capital Markets. “This clearly shows that the tariffs shouldn’t be there. The good thing, in my opinion, is to remove them.”
Some business groups are calling on the White House to do just that, especially as inflation concerns increase.
“These tariffs unnecessarily restrict supply in a way that hinders economic recovery,” John Murphy, senior vice president of international policy at the US Chamber of Commerce, told CNN Business.
Murphy, whose organization opposed Section 232 steel tariffs early on, argued the tariff relief is a way for the government to help speed up the recovery while mitigating simultaneously the nervousness of inflation.
“To have a strong and sustainable recovery, we need a comprehensive strategy to address the shortages and bottlenecks between labor and raw materials like steel and timber,” he said. -he declares. “Trade policy should definitely play a role here.”
Peter Boockvar, chief investment officer at Bleakley Advisory Group, said it would make “absolutely” logical to remove tariffs on timber and steel.
“But they don’t want to be seen as moving to China, or even Canada,” he said. “They make political decisions, not economic ones.”
Meanwhile, the steel and lumber industries are strongly urging Biden to keep the tariffs in place. Their removal could prove politically unpopular, especially among steelworkers in Rust Belt states on the battlefields.
“Why would you bring the national steel industry to its knees when you want to spend $ 2 trillion on infrastructure?” asked Rob Scott, senior economist and director of trade and manufacturing policy research at the Economic Policy Institute. “It would be like taking a hammer to kill a flea.”
Scott argued that steel tariffs effectively supported the industry and that their removal, along with quotas limiting imports, would lead to both a “job drain” and the importation of steel which is in many cases worse for the environment than what is made in America.
“It will mean that the steel we import to build our infrastructure will create jobs in China and the European Union, not here,” he said.
The Biden administration does not appear to have made a decision yet on lifting tariffs on steel or timber, although further efforts are being made to address growing concerns about inflation.
Biden announced late last week that his administration would soon take unspecified steps to tackle supply chain pressures, starting with building materials and transportation bottlenecks.
“You can’t restart a global economy like flipping a switch. There are going to be ups and downs,” Biden said during remarks in Cleveland.
A White House spokesperson told CNN Business that the effort Biden announced will pursue “all avenues that could help reduce bottlenecks and strengthen our economic recovery.”
The spokesperson said the Biden administration was continuing to conduct an in-depth review of the Trump administration’s trade policies and that review would inform next steps.
“Tariffs are one tool in the toolbox to support American workers and American industry,” the spokesperson said.
After meeting with residential construction executives last week, US Secretary of Commerce Gina Raimondo pledged to identify “targeted actions” government and industry can take to address chain constraints. supply that pose a “serious challenge” to the residential construction industry.
Officials from the United States and the European Union recently launched talks to settle the steel and aluminum dispute. In a statement, US and EU officials agreed that as allies sharing “similar national security interests,” they can promote higher standards and “hold countries like China to account for supporting China’s policies. trade distortion ”.
Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence, questioned the logic of keeping the tariffs on Section 232 national security steel on the EU, especially since China, not the Europe is the biggest source of cheap steel.
“If we are to be the most capable of fighting China, it will have to be with the help of our allies, those we alienated under the Trump administration,” she said.
The steel industry, however, is in no rush to say goodbye to the tariffs that sent steel inventories to the moon.
“Eliminating tariffs on steel now would jeopardize the viability of our industry,” wrote seven of the major groups representing the national steel industry in a May 19 letter to Biden. “Given the essential role of the steel industry in the defense of the country and its critical infrastructure, tariffs must remain in place.”
United Steelworkers International President Tom Conway said in a recent statement that the union “hopes to achieve a solution” with the EU but “is also determined to avoid any approach that undermines the strength of our industry and the opportunities offered. to American workers ”.
Likewise, the US Lumber Coalition, an alliance of large and small lumber producers, has called on Biden to keep lumber tariffs in place on Canada until his unfair trade practices are corrected. .
“More lumber manufactured in America to meet domestic demand is a direct result of the enforcement of trade laws, and we strongly urge the administration to continue with this enforcement,” said Jason Brochu, US co-chair. Lumber Coalition, in a recent press release.
Ultimately, Biden must balance these concerns with fears of an overheated economy and price spikes that are squeezing families and businesses. How Biden decides on the tariff issue could help telegraph just how concerned he really is about inflation.
Copyright 2021 WDRB Media and CNN. All rights reserved.