Government regulations sometimes benefit forestry and the lumber industry, but other times, they can really hurt both. One case-in-point: the 2012 governmental interference in plywood pricing by the U.S. Department of Commerce (DOC). Washington responded to alleged “dumping” or unfair pricing by imposing a duty averaging 22.14% on all Chinese hardwood plywood.
Even after the allegations were found to be innocent of any unfair pricing, the DOC stood by their decision, eventually hurting both consumers and the lumber industry, at large.
Why the Interference Occurred
The U.S. International Trade Commission estimated that at the time, $707.3 million in Chinese hardwood plywood was imported annually; that amount adds up to approximately 33% of hardwood plywood consumed in the U.S. The DOC’s hefty duty was imposed as a response to an unfair trade petition filed by the Coalition for Fair Trade of Hardwood Plywood (CFTHP). Their petition, based on their own research, requested antidumping and countervailing duties to be established for plywood exported or manufactured by over 100 Chinese companies. Two companies were exempted, while the others were subjected to preliminary duties of 63.96%. Wood importers expressed concerns that the ruling would contribute to shortages of plywood supply for U.S. manufacturers of various wood products.
How the Situation Progressed
Despite the fact that the DOC’s own investigation failed to corroborate the findings of the CFTHP, the duty was retained. No unfair subsidies from the Chinese government or unfairly low sale pricing were discovered.
Greg Simon, co-chair of the American Association for Hardwood Plywood (AAHP), described the main problem with this strange decision: “The domestic petitioners are seeking a competitive advantage through this investigation, but their fallout will be far-reaching-supply disruption, price volatility and longer lead times, negatively affecting the petitioners [sic] very own customer base. These unfair duties will be felt throughout the imported and domestic supply chain by many U.S. manufacturers and the thousands of people that they employ.”
Whether his assumptions were correct about the CFTHP’s motivation for filing their petition, the response from U.S. hardwood plywood manufacturers certainly made a questionable situation worse: They raised their own prices. While still beating the artificially inflated prices of Chinese plywood, this spike in prices seemed to undercut the very purpose behind the countervailing duty. While U.S. manufacturers cited “increased raw material costs” as the reason for their climbing prices, the timing seems more than a little suspicious.
What We Think About the Scenario
Sometimes, rising prices are actually a good thing, as much as they might hurt. They can be a sign of a prosperous economy, thriving lumber industry, or both. (Such has been the case for Poplar and other species.) However, that kind of thing was not the case for hardwood plywood.
In the end, everyone lost: the importer, the domestic manufacturer, and the customer. The importer loses because it loses revenue. The domestic manufacturer loses because it eliminates the added value accrued through the imposed duty. And the customer loses because he has to pay more for the same products, with no good reason.
Continue to Part 2.
