Aw Come On, Government

May 7, 2017

Aw come on, government, can’t you just get off people’s backs and let them produce wealth, employ people, and pay your exorbitant taxes?  President Donald Trump has just last month imposed a 20% import duty on lumber from Canada.  The lumber we import is mostly from British Columbia.  (That should help bring down the high price of U.S. housing.  Sure!)  B.C. exported $4.6 billion worth of softwood lumber to the U.S. last year.  Canada, playing poker with us, has quite correctly said they would see our tariff bet and bump it up a notch.  They plan to do this by refusing to export American thermal coal from Canadian west coast ports.

This may seem a minor spat between two good neighbors, but I don’t see it that way.  Some people call the U.S. the Saudi Arabia of coal because we have the stuff in such abundance.  Coal is divided into thermal coal and metallurgical coal (also called met coal and coking coal).  Thermal coal is used in power plants.  Metallurgical coal is used in making steel.  Thermal coal sells for around $40 a ton.  Met coal goes anywhere from $100 to $300 a ton depending on the whims of a fickle steelmaking goddess.

Met coal is not a part of our story so let’s bid it adieu and go straight to thermal coal.  Perhaps the richest coal resource is located in the Powder River Basin mostly in northern Wyoming with the rest in southern Montana hard by the North Dakota and South Dakota borders.  $40 a ton for thermal coal isn’t much of a price.  Perhaps it would be clearer if the $40 is translated into a more familiar unit.  It works out to 2 cents a pound.  Powder River coal is sometimes desirable and sometimes not.  It has a low thermal content compared to coal from other places.  That’s bad.  It has a low sulfur content, and it produces less ash at the end of burning.  These are good.

At 2 cents a pound it is difficult to make any money mining this stuff.  It is indeed a testament to the ingenuity, resourcefulness, and industry of the Americans that they can produce, transport, and sell coal for 2 cents a pound.  We export 19 million tons of both types of coal to the world, 6 million of which go to Asia.  Needless to say, Asia is not going to come to the Powder River to pick up what they need.  We have to export it.  That means we have to ship it by rail to West Coast ports, load it onto bulk carrier ships, and send it there.

And that’s where the problems start.  People on the U.S. West Coast—call them what you wish, environmental whackos, snowflakes, greenie weenies—hate coal.  They used to hate burning coal.  Now they just hate coal per se.  We tried to build seven coal exporting terminals in California, Oregon, and Washington State.  The Oakland, California, City Council passed a resolution banning coal handling.  Three proposals for coal terminals in Oregon are dead.  Two proposals for these facilities in Washington are dead, and one is still under review.

No problem.  There are two terminals in British Columbia, Canada, that are open and exporting U.S. coal.  Oops, wait a minute.  Yes, there is a problem.  Actually, there are several problems.  They start with President Donald Trump and his 20% levy on Canadian lumber, the stuff we import to build our homes.  It goes from there to Canadian Prime Minister Justin Trudeau who told Trump to take his 20% duty and stick it in his ear.  Trudeau said if you tax our lumber we are going to tax your coal exported through Canadian ports.

But that’s not all.  British Columbia Liberal Party Premier Christy Clark thinks Canada should either ban or heavily tax coal going through her ports.  As a matter of fact 94% of her coal exports are mined in the U.S.  She said, “Banning thermal coal shipped through B.C. ports stands up for forest workers and helps fight climate change”.  But hold on.  There’s more.  The other 6% of B.C. coal exports come from B.C.’s neighbor on the east, Alberta.  Alberta’s Premier Rachel Notley has said Clark’s proposed $70-a-tonne duty would be bad for the industry.  (A tonne is a metric ton that is 2204 pounds as opposed to a short ton of 2000 pounds.)  No kidding, Premier Notley, a tax of $70 a tonne on a commodity with a free market price of $40 a ton would be bad for business?  Who woulda thunk?

The waters are muddied yet more.  British Columbia people are no different from Washington State, Oregon, and California people except they’re Canadian.  The same mentality prevails up there as down here.  Tuesday next week Premier Clark faces an election.  She is a Liberal.  Her two opponents are from the NDP, the New Democratic Party, (think Bernie Sanders) and the Green Party.  There is not a conservative or libertarian in sight.  Nobody loves freedom up there.  The Liberal doesn’t want our coal to go through her ports, but she does want to export their lumber.  The NDP and the Green party candidates don’t want either.

This lumber import duty is not just a negotiating position on President Trump’s part.  It went into effect last month.  Please let me repeat what I’ve said before.  I defy anyone, economist, businessman, politician, or anyone else for that matter, to show me one country anywhere anytime that has improved its lot by erecting barriers to trade.  If these politicians get their way Canadian forestry workers and American coal miners will be hurt badly.  So will all the people who support their work, railroad workers, port workers, bankers, insurance people, and on and on.  So will the people who depend on vibrant economies in those locations, restaurant workers, home construction workers, retail clerks, and on and on yet again.

So, President Trump, please back off.  You are hurting the very people you promised to help.  And one more thing, I thought the U.S. Constitution said commerce is the exclusive province of the Federal Government.  When are you going to bring these loony lefties on the West Coast to heel?  When are you going to tell them the Federal Government says it’s okay to export American coal through American ports whether they like it or not?  This little encounter with reality is long overdue.