The Impact of the U.S.-China Trade War on China's Wood Industry

Since the White House website released a presidential memorandum on March 22, 2018, U.S. time, announcing the president’s decision to impose additional tariffs on more than 1,300 imported products from China worth 50 billion U.S. dollars in response to the Section 301 investigation, Sino-U.S. trade tensions have gradually escalated.

On July 11, 2018, the U.S. government announced additional tariffs on approximately $200 billion worth of goods imported from China and launched a public consultation on these measures. On August 2, the U.S. side announced its intention to raise the tariff rate on the aforementioned $200 billion in goods from 10% to 25%. From August 20 to 27, a six-day hearing was held to gather public input on the $200 billion in goods. The list of $200 billion in goods released on July 11 includes products such as logs, sawn timber, veneer, flooring, particleboard, fiberboard, plywood, packaging materials, wooden doors and windows, and wooden furniture. The final list of goods subject to additional tariffs and the date of implementation will be announced after the hearings.

In response, the Tariff Commission of the State Council decided on August 3 to impose additional tariffs on 5,207 tariff items originating from the United States. This measure affects approximately US$60 billion in trade imports from the U.S., with additional tariff rates ranging in four tiers: 5%, 10%, 20%, and 25% (for a detailed list, please see the attachment). The product list includes logs, sawn timber, veneer, flooring, particleboard, fiberboard, plywood, packaging materials, wooden doors and windows, and wooden furniture. The implementation date will be announced separately.

Whether China will impose additional tariffs on wood and wood products originating from the United States—and when such tariffs will take effect—depends on whether wood and wood products are included in the U.S. $200 billion list. The situation is expected to become clearer in September or October.

Currently, the tariff collection list includes relatively few items in the wood and wood products category, leaving wood importers and processing plants still adopting a wait-and-see attitude. Based on our on-site research and field visits, we’ve summarized the following market feedback:

1. Has little impact on China's timber supply.

In the short term, since domestic U.S. lumber inventories were relatively high in the first half of this year, their impact on supply in the second half will be limited. July and August are typically the season for placing orders for next year’s deliveries; however, due to uncertainties surrounding future policies, Chinese importers this year either haven’t placed orders at all or have placed only 50% of their usual order volumes. As a result, U.S. lumber supply next year is likely to be affected.

In the long term, U.S. timber accounts for only about 10% of China’s total timber supply, so the overall impact on China’s timber supply will be relatively limited. In the first half of 2018, U.S. logs accounted for 10.7% of China’s total log imports, and sawn timber accounted for 8.4% of imports. These issues can be addressed by sourcing alternative timber from other countries or by shifting to transshipment through other ports.

2. If additional tariffs are imposed, the U.S. timber industry will be significantly affected.

China is the largest destination for U.S. timber exports. According to data from the U.S. Census Bureau, in 2017, the United States exported 6.138 million cubic meters of logwood to mainland China, accounting for 53.9% of U.S. logwood exports; and 3.265 million cubic meters of sawn lumber, representing 38% of U.S. sawn lumber exports. In the first half of 2018, U.S. logwood exports to mainland China totaled 3.364 million cubic meters, an increase of 19.51% year-on-year; sawn lumber exports reached 1.705 million cubic meters, up 11.06% over the same period last year. Logwood imports from the U.S. account for half of China’s import market, while sawn lumber occupies one-third of the market.

Moreover, the U.S. timber harvesting and wood-processing industries have long been facing a labor shortage. Now, with the rapid development of the new energy sector, most of the available workforce has been drawn to that industry. If China were to stop importing timber, U.S. processing plants would lay off workers due to lack of orders. Even if orders were to rebound in two years’ time, the U.S. wood-processing industry would find it extremely difficult to rehire workers.