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Cheap Doesn’t Make It Right
A coalition of U.S. hardwood plywood manufacturers filed today a petition with the International Trade Commission and the U.S. Department of Commerce requesting antidumping margins of up to 300% and countervailing duties for subsidies on Chinese manufactured hardwood plywood.
Chinese import share of the U.S. market has skyrocketed from 7% in 2000 to over a 66% market share in 2011. Why did this happen? In addition to addressing that question, the question of how U.S. customers will be impacted if the U.S. manufacturers are successful in their trade case will also be discussed.
First let’s understand some facts:
U.S. hardwood plywood manufacturing capacity over the last 5 years has been reduced by over 20% with plant closures caused by the housing depression and rising imports.Capacity utilization dropped from 66% in 2002 to less than 45% of that diminished capacity.
Hundreds of good paying rural jobs, taxes paid, and associated businesses from loggers to truckers to suppliers were all permanently lost.
The U.S. industry’s before tax profits are estimated to be 2%.
Hardwood plywood imports from China grew from $389 million in 2009 to $576 million in 2011.
Over the last 3 years in a U.S. market decimated by the housing depression, Chinese hardwood plywood imports continued to grow from 56% share in 2009 to 63% in 2011.
China consumes more logs (400 million m3, $3.66 billion, 55% of world’s total log exports) than any nation to feed its forest products industry including $274 million of hardwood logs from the U.S. These logs are processed in China and return to the U.S. and other countries in finished goods such as furniture, cabinets and other wood products valued in the billions of dollars.
China consumes more illegal logs than any other nation and the World Resources Institute estimates that 17% is used in plywood production. These manufacturers gain a raw material cost advantage of about 20% in products where raw materials account for typically over 75% of the costs of production.
China is not a free market and the government’s industrial policy has supported at virtually at all cost the expansion of its manufacturing sector to provide jobs that maintain domestic tranquility and social order in its society. Funds to support these policies come from export revenues.
So what happened to the U.S. hardwood plywood industry?
China grew its industrial base in hardwood plywood under a 5-year plan by 255% from 2002-2006 to over 600 producers compared to two dozen in America. Government industrial policies and programs provided subsidies to support that explosive growth. To this day, Chinese producers enjoy a reduced raw material cost advantage by using illegal logs which their government is lax to enforce. Tax rebates and other subsidies support aggressive programs to increase exports to the mature industrial economies in the United States and Europe.
When the domestic market in China cannot absorb all that is produced, and then the excess production is “dumped” into the global market. It’s a classic case. The EU put into place countervailing duties on Chinese-produced hardwood plywood imported into their market. The U.S. industry seeks the same remedy.
Ironically, when the U.S. housing bubble was developing, this new U.S. demand coincided with China’s explosive capacity growth. The U.S. industry could not compete with the cheaper Chinese imports that captured the “bubble” demand and then held onto and increased their market share after the bubble burst.
The U.S. does not have an “industrial policy” to promote and protect its industry. We rely on the free market and legal trade remedies which are the only tools available to the industry. Hence, the filing of the anti-dumping and countervailing duty case against Chinese hardwood plywood producers.
The bottom line is the playing field is not level with China.
China consumes more logs (400 million m3, $3.66 billion, 55% of world’s total log exports) than any nation to feed its forest products industry including $274 million of hardwood logs from the U.S. These logs are processed in China and return to the U.S. and other countries in finished goods such as furniture, cabinets and other wood products valued in the billions of dollars.