As China’s domestic economy took off, Chinese buyers were sent scouring the globe for new wood supplies. Why? Because after massive floods blamed on deforestation of China’s forests, China sharply restricted logging at home. According to the Environmental Investigation Agency (EIA), in 2009 one-third of all the timber sold worldwide was bought by China, with little regard to its origin. After analyzing trade data for 36 supplier countries, the EIA has concluded that approximately 10% of the logs and sawed timber is illegal, representing “turnover” of $3.7 billion. 

China is not known for a strong environmental protection or safety record in products or the workplace. The August 10th, 2013 edition of The Economist’ cover calls China: “The world’s worst polluter – Can China clean up fast enough?” Environment International reported: “Over the last 20 years, China’s formaldehyde industry has experienced unprecedented growth, and now produces one-third of the world’s formaldehyde. More than 65% of the Chinese formaldehyde output is used to produce resins mainly found in wood products – the major source of indoor pollution in China. Although the Chinese government has issued a series of standards to regulate formaldehyde exposure, concentrations in homes, office buildings, workshops, public places and food often exceed the national standards. The wood processing industry has the highest average industrial formaldehyde concentration, caused in part by unventilated workshops and a lack of safety precautions.” 

A slew of other recent reports have found Chinese homes and work spaces basically swimming in formaldehyde. Berkely released a study in 2009 specifically examining exposure levels and health effects in China. Here’s one disturbing excerpt from their conclusion:

Although the Chinese government has implemented a series of standards to regulate formaldehyde, the lack of enforcement has resulted in only limited success in controlling exposures. Consequently, a large number of Chinese individuals continually encounter multiple sources of formaldehyde exposure every day. These include environmental, occupational, residential and contaminated food.

Given the magnitude of formaldehyde exposure in China, both in terms of the number of people exposed and the levels of formaldehyde exposure, the potential health consequences of formaldehyde are of serious concern. (4)

So does it all get down then to “May the cheapest win!”?

Will domestic cabinet industry be harmed if they do not have access to cheap Chinese hardwood plywood if duties are imposed to address the trade law violations?

The very point of dumping and subsidization is to capture a foreign market. Eventually, the unfair traders monopolize the foreign market (by driving competitors out through price undercutting). And, in any monopoly, without strict controls, prices increase dramatically. This is China’s aim, even while it keeps its own domestic market protected. They export $670 million of HWPW and we export to them $250,000 of HWPW and $17.6 million of hardwood veneer. Chinese hardwood plywood imports into the U.S. increased 37% from 2010 to 2012. Ready to assemble kitchen cabinets from China into the U.S. market increased 25% over that same 2 year period to $451 million. There is a pattern here I suspect.

There are no hardwood products which are currently imported from China that cannot be manufactured by domestic producers. If a cabinet or furniture company wants to source their requirements from domestic producers, they surely can. And, since the domestic producers are operating at about 50 percent of their production capacity, there is plenty of room to ratchet up production to meet increased demand.

By ratcheting up production to meet increased demand, domestic manufacturers can spread their fixed overhead costs over a larger production pool. This, by itself, would serve as a natural “brake” on any price increases. But, there is another fundamental point regarding pricing: fairly traded products tend to cost more than unfairly traded products.

Chinese imports squeezed out other countries who used to have a larger share of the U.S. market. These suppliers will also come back into the market as well. There will not be supply shortages. There will be a new market equilibrium which will be based on the fair trade of hardwood plywood from all producing countries.