Protectionist tactic could put ‘Made in China’ label on housing boom

Last week’s Department of Labor announcement of the drop in unemployment showed signs of life in the economy, driven in part by a booming U.S. housing market that has been on a roll for several quarters. 

New homes mean new materials from foundation to roofing, and this is creating a lot of jobs for the manufacturers and distributors of those materials throughout the supply chain. The robust kitchen and bath cabinetry industry alone is an estimated $7 billion industry, according to data from the Kitchen Cabinet Manufacturers Association.

Good news, right? 

Unfortunately, this market growth could be stalled and reversed by a direct attack on U.S. manufacturing created by just six companies in a dubious government play to change the dynamics of an important commodity to this industry. 

Last fall, under the premise of “unfair” trade practices, six domestic manufacturers of plywood filed a petition with the U.S. International Trade Commission (ITC) asking that over 300 percent tariffs be imposed on hardwood plywood imported from China that is heavily used by American manufacturers to produce kitchen and bath cabinetry as well as furniture, boats, paneling, store fixtures, shipping containers and many other products. 

The petition advanced to the Department of Commerce to determine if China’s practices warranted antidumping and countervailing (anti-subsidy) duties and then will head back to the ITC to make a final injury determination. In early March, the Department of Commerce determined that three mandatory Chinese respondents investigated in detail all received 0.00 percent countervailing duties (CVD) preliminary duty margins — effectively refuting the “unfair trade” claims by the petitioners that Chinese hardwood plywood producers are unfairly subsidized. In other words, no harm done.

Despite this finding, Commerce issued a very puzzling preliminary affirmative determination and announced an unprecedented countervailing duty of 22.63 percent on the majority of hardwood and decorative plywood imported from China.

This was just the beginning. At the end of April, Commerce hit U.S. manufacturers with even more duties on imported Chinese hardwood plywood, despite its finding that none of the individually investigated exporters engaged in “dumping” (unfair pricing). Commerce announced a preliminary antidumping duty of zero percent on all Chinese exporters they elected to individually examine. However, it refused to correctly apply it to the remaining exporters, who collectively represent the vast majority of the industry , instead appling a 22.14 percent duty to U.S. manufacturers’ purchases of hardwood plywood from these fully cooperative exporters.  

So, in two separate instances, the government has found no evidence of wrongdoing, yet delivered a one-two punch that will be a devastating blow for downstream U.S. manufacturers. After spending taxpayer dollars to investigate the petitioners’ claims, Commerce only found unfair trading for those companies it chose not to investigate. Imagine the reaction if one of our largest trading partners applied a similar “guilty without trial” approach to U.S. exports?  

This anti-import bias by the government has been instigated through a handful of domestic companies that are seeking a competitive market advantage, but their fallout will be far-reaching. Ironically, the resulting supply disruption, price volatility and longer lead times will be felt throughout the imported and domestic supply chain by many U.S. manufacturers and the thousands of people that they employ — including the petitioners’ very own customer base.

According to a new Trade Partnerships Worldwide report, Imports Work for America, imports support more than 16 million American jobs. More than half the firms involved in direct importing are small businesses, employing fewer than 50 workers. The report goes on to say that "policies that would reduce imports would have a negative impact on the very constituencies those policies are expected to benefit. By raising the costs of inputs, currency legislation and new 'Buy America' proposals would actually harm U.S. manufacturers more than they would benefit U.S. manufacturers.”

Manufacturers that use imported hardwood plywood create a lot of U.S. jobs. From start to finish, the hands of a lot of American workers do the milling, grooving, sanding and varnishing and assembly of this raw material into a final manufactured product.

Many small companies will be unable to adjust to the government’s harsh actions on Chinese hardwood plywood and will significantly downsize or shut down operations. Those companies that are able to adapt to the drastic market change will still sell the high-demand products made from Chinese hardwood. But they won’t be made in the U.S. They’ll be manufactured in China.

Why? Customers will still demand products made from Chinese hardwood plywood. But manufacturers faced with the uncertain costs and constrained supply of the raw material will instead have their products produced from end to end in China, where they can be imported as a ready to assemble product that is 100 percent duty-free. 

So in the end, an anti-China protectionist campaign could ultimately turn “Made in America” products into “Made in China” products, furthering China’s manufacturing dominance into kitchen cabinets, furniture and other consumer segments.

To keep the housing boom going, a hearty global supply of raw material — domestic and imported — is needed so manufacturers can meet demand, maintain production and keep Americans employed. The government shouldn’t dampen this one bright spot in the economy in response to a desperate power play. If it does, the only free trade we will see is the export of U.S. jobs to China.

Simon and Wilkinson are co-chairmen of the American Alliance for Hardwood Plywood.