New ads are popping up around the Nation's Capital touting the good relations we have with our neighbor to the north, Canada.

Good relations are not the complete subject of the ads, of course. There is also the little matter of that pesky 27 percent tariff the U.S. has imposed on Canadian lumber imports since last May.

The idea of such tariffs is to protect U.S. lumber interests but the problem is that tree farmers and lumberjacks are not the only parties impacted by the new fees. Higher lumber costs contribute to steeper prices for new homes, thereby shrinking the market for such properties as well as related industries such as furniture, home improvement, carpeting, etc. The result is that we have happy lumber interests in the U.S. as well as inflamed home builders and frosted Canadians.

Free trade sounds wonderful in theory but in practice it produces mixed results. Production flows to areas where goods can be made at the least cost -- good news for bargain-hunting consumers, but not so good for the U.S. workers who used to make shoes, steel, clothing and a variety of other products. Unfortunately, "least cost" sometimes means countries with wages and working conditions not seen in the U.S. since Benjamin Harrison was in the White House.

The implication of the ad is plain: Canada is a huge buyer of U.S. goods and a major source of imported energy. If we can tax lumber, perhaps Canada will seek greater export duties for its gas and oil. In effect, we can all play the tariff game and in the end no one will win.

The decision to tax lumber is bad policy, but it's also a tough call. We don't want our lumber workers and forest companies hurt by foreign imports, but where was the government when it came to steel, autos and textiles? When was the last time you bought a radio or television that was physically manufactured in this country?

In the case of the lumber tariff the real issue is where can we best tolerate less employment, in the lumber industry or the homebuilding community? There's no good answer, someone will lose.

Home builders argue that higher lumber prices will save a limited number of forestry jobs but far more U.S. jobs will be lost because fewer homes will be built. The U.S. lumber industry supports the tariffs to protect its interests, a position which is wholly understandable.

It's been hard for home builders -- at least to this point -- to argue that the lumber tariffs have materially hurt their industry when unit sales last year were at record levels. But the debate will change if interest rates rise and homebuilding begins to lag. It will also change if oil supplies contract because of the general strike in Venezuela and conflict in the Middle East. We might then find that Canada suddenly requires a higher export tax on the oil and gas it sends our way -- a tax that would be difficult to dispute given both our lumber tariffs and our need for energy, and a tax which would make our energy reliance even more costly than it is today.

The lumber tariff is a political choice and the great thing about political choices is that they can turn on a dime. The lumber tax is offensive to Canadians and harmful to the U.S. generally. It should be dumped.

At the same time, let's not neglect the lumber industry. Workers deserve more dollars for retraining and environmentalists, state governments and others should be encouraged to buy forested acres at fair market value for preservation, thus reducing the lumber glut which now exists. Perhaps a special tax benefit for owners who sell commercial forest land would also help, a notion which seems less harmful than the current approach of tariffs and threats.

Published: February 18, 2003

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