Heads Spin as “Experts” Warn Of Recession or Find A Silver Lining
Six days into the tariff announcement, no viewpoint has emerged on the likely impact of the tariffs. Without question, those reliant on lumber or log exports have reacted swiftly, as export orders are being canceled or pushed back, and some domestic buyers are quickly adjusting their open order files. Yet some are now forecasting relief for a key determiner of the housing markets, mortgage rates, believing that lower rates plus the fact that Canadian softwood (20-25% of what is annually used in the USA) was exempted from further duties will foster an improving housing market. At this point, it seems everyone has a viewpoint, but no one can really put their finger on what will happen.
If the tariffs hold as now written, the hardwood marketplace will be severely impacted. Manufacturers count on Vietnam and China as markets for low-grade lumber, especially Poplar, Red Oak, and also Adler. There will be excesses of the cutting grades used in manufacturing, which will cause growing inventories and some reevaluation of the products manufactured. It will put further strains on supply, filtering up to North American distributors and manufacturers. But I think it is more likely that we are headed for parts of the world to lower tariffs and other barriers to trade to zero, to minimize the effect of tariffs between key trading partners.
South Korea, I think, is the key. They depend on the US market to sell electronics, cars, appliances, and many other items. If they quickly propose a zero-for-zero tariff policy, a Southeast Asian USMCA-type agreement might come into being. This would not include China, as the dispute with the other big guy on the block has many facets and will take longer to negotiate a solution. Additionally, China would always want an agreement to be one-to-one as it reinforces their size and significance in world markets.
At this point, I think it is safe to say that anyone who can reliably forecast the net result of the last 5 days is simply trying to justify writing something and sound intelligent. Without question, falling mortgage rates offer a bright spot amid tariff chaos — but the trade war creates new hazards around other costs in new homebuilding and housing affordability, where costs may outrun mortgage rate savings. Additionally, consumer confidence (likely shattered if you look at your 401K) will be a huge hurdle to overcome before people jump back into additions, renovations and furniture purchases, key areas determining the direction of hardwood markets.
