The U.S.-China trade war is being fought in the forests and mill towns of Arkansas as tariffs take their toll on the hardwood lumber industry.
So far, state lumbermen say, they’ve been able to absorb most of the losses, but a day of reckoning is coming.
Joe Rogers, owner and operator of Rogers Lumber Co. in Camden and a third-generation lumberman, employs 100 workers, runs two logging operations, a sawmill and a pallet manufactory and sells kiln-dried lumber, green lumber and industrial timbers. Through a broker, he sold red oak and white oak to China, though not substantial amounts.
And though the trade war hasn’t curtailed his sales volume, it has meant a 35% decline in prices for his products. “Our lumber has been falling since July of ’18, and it’s still in a freefall,” Rogers said.
In response, Rogers Lumber has cut back on production, meaning a reduction in worker hours, and changed its product mix. “We’re trying to maintain our people,” he said.
“What’s inevitably got to happen is that 30% of the hardwood production or 40% of the hardwood production — or whatever China was consuming — is going to have to go away,” Rogers said.
And China was consuming a lot of U.S. hardwood. The United States is the world’s largest producer of hardwood lumber. “One out of every four boards produced by the hardwood lumber industry in the U.S. was destined for China before the trade war,” said Michael Snow, executive director of the American Hardwood Export Council. “And in the past 18 months, that number has fallen off by more than half now.”
Between July 2018, when China slapped retaliatory tariffs of up to 25% on U.S. hardwood products, and June 2019, U.S. lumber exports to China are down $615 million and log exports are down $179 million compared with the previous 12 months.
Obtaining figures for Arkansas’ hardwood exports is harder. Max Braswell, executive vice president of the Arkansas Forestry Association, said he didn’t have any specific numbers but “certainly can confirm that that is one segment of the forestry community that’s been hit hardest by the trade war.”
Arkansas’ hardwood product output was valued at $2.4 billion in 2016, the latest figures available, and it supported 20,697 jobs, according to the U.S. Hardwood Federation. It put the economic impact of the industry in the state at $3.9 billion.
Howell Cox is the export sales manager for Ralph Taylor Lumber Co., based in Memphis, which owns the T&S Sawmill in Clarendon. T&S, a hardwood mill, employs about 50 workers, plus another 30 involved in logging and trucking for the operation, and deals primarily in red oak, white oak and cottonwood.
Ralph Taylor Lumber, founded in 1968, exports hardwood products all over the world, Cox said. “China was a huge market for us in red oak and white oak,” he said. Of the mill’s kiln-dried production, China was buying about 85% “of everything we made. Now they’re buying maybe 10%.”
“Our monthly kiln-dried sales have dropped by about 60%,” Cox said, resulting in an equivalent decline in revenue monthly, “which is huge.”
In response, the mill has reduced employee hours on the kiln-drying side of the business and has stopped buying green lumber, affecting those producers.
“The only reason that we haven’t laid people off is because we’ve basically absorbed them into other parts of our production,” he said. “Essentially our workforce is about 20% below full employment right now.”
Anthony Timberlands, based in Bearden, has seen its hardwood lumber production decline 40% in the last year, said Steve Anthony, company president. That, however, is not attributable entirely to tariffs and slackening demand. Wet weather that hindered harvesting has also contributed to the decrease.
Nationwide, almost all hardwood mills have cut back on production, said Snow, of the American Hardwood Export Council, and there have been layoffs and reductions in employee hours as well as the closure of several mills. He calls the trade war “devastating” for the industry.
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“The people that we talk to, this is the worst crisis that this industry has faced since, probably, the Great Depression and 1929,” Snow said. “This is worse than the recession in 2007 and 2008 for the simple reason that in 2007 and 2008, when the U.S. and Europe and everyone slowed down, and the housing market crashed here, that happened to be the same time that China’s domestic consumption was really taking off. So China absorbed a lot of that and the industry really weathered that storm very well because they had China as an escape valve.”
China’s domestic consumption was taking off because of China’s economic expansion, which led to increased demand for consumer products like furniture. In China, consumers liked oak furniture, unlike in the United States, where oak furniture had fallen out of fashion. Arkansas produces a lot of oak.
A Crisis Long in the Making
Anthony, who serves on the Executive Committee of the Arkansas Forestry Association, said the seeds of the current crisis were sown in the 1980s and ’90s, when “the Chinese pretty much destroyed the domestic furniture-manufacturing industry in the United States.
“There used to be a healthy and robust industry centered in the Carolinas that consumed the majority of domestic production of upper-grade lumber, and the Chinese completely took that over, with the result being that the Chinese became essentially the only consumer of upper-grade hardwood lumber.
“So when the trade dispute began, they just completely discontinued buying those products, and there’s very, very little alternative market for those products.” And that means, Anthony said, that the value of those upper-grade products — which have historically carried a high price — has declined “almost to the point that they’re no more valuable than the lower-grade products.”
Higher grade hardwood is used in products like furniture, cabinetry and moldings. Lower grade hardwood primarily is used for railroad crossties, and demand remains strong for those.
There are essentially two kinds of hardwood sawmills, Anthony said, grade lumber mills and tie mills. Anthony Timberlands has two grade hardwood lumber mills and one tie mill. His tie mill remains profitable, and the company has tried to convert its grade lumber mills into ones suitable for producing railroad ties, “which is not easy to do,” he said.
‘So Much Leverage’
Like the Arkansas soybean farmers who have talked to Arkansas Business about tariffs, lumber manufacturers in the state have mixed feelings about the trade war with China and what President Donald Trump says he’s trying to accomplish. His goals, among others, include fairer trade practices and protection of intellectual property rights.
Rogers, of Rogers Lumber in Camden, said these issues should have been addressed 20 years ago. “What Trump is attempting to do is a good thing, but it’s a 10-, 15-year plan,” he said. “People think manufacturing is going to come back to the U.S., but somebody’s got to break ground and build a plant and then staff the plant with people that you can’t find.
“I think some manufacturing is going to come back to the U.S., but it will be a slow go and it will be hard to do.”
Anthony said he’s “conflicted.” He thinks China’s endgame would have resulted in the destruction of hardwood manufacturing in the United States, something that Rogers also feared.
“The problem that we have is that, in my opinion, we have allowed the Chinese to gain so much leverage over time,” Anthony said. “If this were addressed in the ’80s or ’90s, we wouldn’t be in the situation we’re in.
“And I say that because, before these tariffs were put in place, the Chinese had begun purchasing hardwood sawlogs in this region, paying prices that were basically 40% to 50% higher than domestic prices. And it’s the same thing they did to the furniture manufacturers. They subsidized the industry and took it over, destroyed it.
“And they were basically vertically integrating the destruction of the hardwood industry here by going upstream. In a matter of a decade or two, if nothing changed, we would look up and there would be no more hardwood sawmills. Then we’d just be exporting the hardwood logs. And that’s your manufacturing base that you’re losing.”
‘No Alternative Market’
Like Arkansas soybean farmers, the state’s hardwood manufacturers worry that they won’t be able to regain market share in China once the trade war concludes. Other countries have stepped up to meet that country’s demand for hardwood, particularly Russia and the African nation of Gabon.
“I don’t think there’s any question that we’re going to lose market share,” said Cox, of the T&S Sawmill. “I think that is an absolute given. Those supply chains have been disrupted … and it’s going to take us years, if ever, to get back.”
As for replacing China, that seems unrealistic as well. “There is no alternative market to China,” Cox said. “It’s just too big a chunk of the market.”
In addition, a couple of factors exacerbate the effects of the trade war on the hardwood industry in Arkansas.
First, many of the mills are small, privately owned companies lacking the financial resources needed to withstand a prolonged decline in the market.
Second, the mills are located in rural areas where they often are the sole employer of any size. So layoffs have an outsized effect on the local economy.
“I don’t know a good fix,” Rogers said. “I don’t think any of us really know.” He does know that the trade war “will ultimately cost jobs in Arkansas.”
On Thursday, Peter Navarro, Trump’s trade adviser, called for a united front against China, saying, “We are dealing with a strategic rival — and they are trying to buckle our knees.”
Maintaining that unity could be hard in Arkansas. “My biggest concern though is just simply the fact that as long as there is a greatly reduced Chinese market, there will be a greatly reduced demand for hardwood products,” Cox said.
“One thing that can happen is reduce demand, reduce supply,” he said. “Reduce supply, you reduce sawmills. Most of them are family-owned and most of them are in rural areas and probably most of them are the largest employer within 10 or 15 or 20 or 30 miles of wherever they’re sitting.”
Cox said: “Arkansas is going to take a huge hit from this if it continues to go this way.”