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Softwood dispute will only push cost of rebuilding Houston higher: economist

Rene Ramirez helps move debris from a home damaged by floodwaters in the aftermath of Hurricane Harvey on Wednesday, Sept. 6, 2017, in Spring, Texas. (AP Photo/David J. Phillip)
September 06, 2017 - 1:21 PM

OTTAWA - A growing demand for building materials — as Houston looks to reconstruct in the wake of hurricane Harvey — should put pressure on the White House to solve the latest softwood lumber dispute with Canada, a senior bank economist says.

U.S. home builders already use virtually every log imported from Canada, and any increase in demand following the hurricane's devastation will mean the U.S. looks to Canada for more wood, said Brett House, deputy chief economist at Scotiabank.

"Rebuilding Houston means they are going to have to keep buying every single log they can get their hands on from Canada and that's really going to provide an incentive to move forward on the softwood lumber discussions in a way that's constructive for Canada," House said Wednesday in an interview.

With the softwood dispute pushing prices upwards, continuing the quarrel will only serve to drive up the cost of rebuilding, House says.

At least 200,000 houses in the Houston area were damaged by the hurricane and Texas Gov. Greg Abbott predicts the ultimate cost will reach upwards of $150 billion US, much of which will be borne by the federal government.

The U.S. government covered more than 70 per cent of the cost of damages from hurricane Katrina in 2005 and more than 80 per cent of the damages from hurricane Sandy in 2012.

With hurricane Irma bearing down on Florida, Georgia and the Carolinas this week, additional damage costs are expected.

In the spring, the U.S. Department of Commerce accused Canada of subsidizing its industry and slapped import tariffs averaging nearly 30 per cent on Canadian softwood. Late last month it delayed final rulings on the issue while the two countries try to negotiate a settlement.

Canada strongly denies any subsidization — an argument it has won the previous four times the U.S. imposed softwood import duties on Canada — and plans to fight the duties in court or via international trade bodies as soon as a final ruling is delivered.

The Washington-based National Association of Home Builders says material costs for builders have risen 20 per cent since the dispute started, as it pushed up the market price for softwood.

The association recently pleaded with the White House to solve the dispute with Canada.

"This is important because tariffs — basically just a tax on consumers — will be felt most harshly by families trying to rebuild," association chair Granger MacDonald said in a statement.

Home Builders Association CEO Jerry Howard said the need for Canadian wood could grow if the U.S. domestic supply gets hit by the storms as well.

The extent of the damage Harvey caused to forest lands in parts of Texas where southern yellow pine grows is yet to be known. The timber is an alternative to Canadian softwood.

Irma may exacerbate that problem if it causes damage in Georgia and South Carolina, which also produce southern yellow pine.

"The rebuilding effort just for the housing stock is going to be unprecedented in the history of American storms and that's not even taking into account the second storm that's coming down the pike this weekend," said Howard.

It's too early to know whether anyone in Washington is hearing the plea because efforts haven't entirely moved to rebuilding yet, he added.

Toronto-based international trade lawyer Mark Warner says using hurricane Harvey to pressure the U.S. to solve the softwood dispute would be "crass" and likely will not have any impact because the disagreement is as much about politics as it is about money.

Warner said he doesn't see the U.S. Lumber Coalition withdrawing its complaint about Canada's alleged softwood subsidies because of Harvey or Irma.

While solving the softwood dispute could ease price pressures, both Republicans and Democrats are on the side of the U.S. lumber producers, he said.

"I think you can make the argument they should (solve the dispute) but I just don't think it will happen," he said. "I really don't. The politics come in the way."

— Follow @mrabson on Twitter

News from © The Canadian Press, 2017
The Canadian Press

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