Lehigh Valley home builder Rick Koze knew that a new lumber trade agreement with Canada was looming and any new pact would probably be accompanied by a price increase.
But Koze, president and owner of Kay Builders, didn't foresee that a breakdown in negotiations would lead the Trump administration to announce retroactive tariffs ranging from 3 to 24 percent on five Canadian lumber exporters.
"What should have happened is they should have redone the agreement, maybe raised prices 10 percent or put a partial tariff on it. But anytime there's extreme changes in the market, it's bad for everybody," said Koze, whose local housing projects include Trio Fields in Lower Nazareth Township, Laurel Field in Upper Macungie Township and Blue Ridge Chase in Upper Saucon Township.
The preliminary ruling, announced by the Commerce Department on Monday, comes as the U.S. softwood lumber industry has long complained that imports from Canada are subsidized by provincial governments, giving Canadian lumber firms an unfair pricing advantage.
Softwood lumber comes from coniferous trees. It makes up about 90 percent of the wood used to build a home, according to Koze. Imports from Canada today account for about a third of the market in the U.S.
Koze said the cost of building a single-family home in the Lehigh Valley, which he estimated at $330,000, could go up by $6,000 to $7,000 because of the new tariffs.
"It's hard to say how much, but with interest rates going up…between that and these costs going up, you're going to knock a lot of people out of the market, " Koze said. "That means it's bad for the economy overall, because construction does create a lot of jobs."
Koze said lumber prices had been low since the last trade deal expired in 2015 and a moratorium allowed Canada to export softwood lumber duty free.
He said prices went up about 15 percent in the last few months in anticipation of a new deal that would cut U.S. lumber companies a break. Now he estimates the new tariffs could drive prices up another 10 to 15 percent.
"(Donald Trump) is a builder but he's also trying to protect from unfair imports, so he's in a bit of a predicament," Koze said.
Koze said a best-case scenario for builders would be splitting the increased cost with the home buyer.
The National Association of Home Builders shares his concern. While the new tariffs would increase output by U.S. producers of softwood, the trade association said it would add $1,236 to the national average price of a single-family home and lead to a loss of nearly $500 million in wages for American workers.
"This will have an impact on housing," said Robert Dietz, chief economist at the home builders' group.
U.S. lumber representatives disagreed. They applauded the Trump administration action, saying that enforcing fair trade laws and leveling the playing field could increase the domestic industry's employment.
About 360,000 people work in sawmills and other jobs linked to the industry, such as truckers hauling wood, according to the U.S. Lumber Coalition.
Meanwhile, state Department of Agriculture spokeswoman Shannon Powers said it's not clear what impact the tariffs will have on Pennsylvania, where softwoods make up about 10 percent of lumber production.
She said it's possible Canada could counter with a tariff on imported products, including hardwoods. Pennsylvania exports $131.9 million in milled lumber to Canada annually, she said.
"So if Canada were to place a tariff on what they're receiving from us, that might discourage Canadians from purchasing American or Pennsylvania lumber," Powers said.
Overall, the announced duties would average about 20 percent and could amount to a total of around $1 billion. Additional penalties could be levied if Commerce determines Canadian lumber is being dumped into U.S. markets.
The Commerce Department's announcement follows a complaint filed last fall by the U.S. lumber industry following a year of unsuccessful negotiations between U.S. and Canada on a new accord.
An investigation was initiated under the Obama administration, and the Commerce Department's ruling was issued Monday to meet the deadline for reporting a preliminary finding on the case.
The Canadian government called the new duties "unfair and punitive," and said the industry would challenge the ruling through legal avenues. Canadian officials argued that the tariffs would hurt U.S. home builders and, ultimately, American consumers.
While the U.S. and Canada have had understandings on lumber apart from NAFTA, the new duties have heightened tensions that were already rising amid sharp rhetoric by Trump and his senior officials critical of NAFTA, first focused on Mexico and more recently on Canada.
What: President Trump's administration this week slapped retroactive tariffs ranging from 3 to 24 percent on five Canadian exporters of softwoods, which are used in building homes.
Why: The U.S. softwood lumber industry says Canadian imports are subsidized by provincial governments, giving Canadian firms an unfair pricing advantage.
Pro: The U.S. Lumber industry says enforcing fair trade laws and leveling the playing field could increase the domestic industry's employment.