Trump’s trade war with China lands blow at Central New York lumber mill
Date: Monday, September 9, 2019
The last time Dickie Scutt thought his job at a Cortland lumber mill might be on the line -- during the Great Recession a decade ago – China saved the day.
A growing Chinese middle class developed a taste for American hardwoods, a status symbol for those who could afford American red oak floors, kitchen cabinets or furniture.
Gutchess Lumber, a fifth-generation company that’s produced premium hardwoods in the heart of Upstate New York since 1904, now sells about 50 percent of its lumber to customers in China.
And that’s what keeps Dickie Scutt awake at night.
The mill where Scutt’s grandfather, father and uncles worked before him – and where he works with his brother and cousins today – has become a victim of President Donald Trump’s trade war with China.
Scutt and his 250 coworkers at Gutchess Lumber have been hit especially hard. The privately-held company’s revenue is down 20 to 25% since the Chinese imposed the tariffs last year.
Trump has slapped tariffs on about $550 billion on Chinese imports since July 2018, attempting to stop what he views as trade abuses by the world’s second-largest economy.
The Chinese responded with about $90 billion in retaliatory tariffs -- taxes on a variety of American goods sold to customers in China -- including 10 species of American hardwoods.
For most Americans, it’s been a battle that’s out of sight and out of mind, taking place with an adversary some 7,000 miles from Upstate New York.
But at Gutchess Lumber, the war has started taking a toll. Hourly employees, who worked an average of 50 to 55 hours per week with generous overtime before the tariffs, now work 40 to 45 hours per week at a base rate of $15 to $17 per hour.
Salaried workers like Scutt, who manages the saw mill, have been required to take three unpaid furlough days each month since July. And the company temporarily stopped its matching contributions to the employee 401K retirement program.
“The lumber industry as a whole is up and down,” said Scutt, who began working at Gutchess Lumber after high school 23 years ago. “There are always spikes one way or the other. But this is kind of a new experience for me. I’ve basically lost almost 20% of my income.”
Scutt, 41, who lives in Cortland about 3 miles from the lumber mill, said the cutbacks have started to weigh on his family of four, including his 16-year-old son and 13-year-old daughter.
“We didn’t take a family vacation this year because of the furloughs,” Scutt said. “It’s a lifestyle change. We don’t eat out as much. We have to follow a budget.”
For the kids, that’s meant fewer Saturday trips to Thunder Mountain Speedway in nearby Broome County. “It’s tough to say no, but you have to,” Scutt said.
The cutbacks at Gutchess Lumber have rippled through the eight locations where the company owns sawmills, lumber and log yards in Upstate New York and Pennsylvania. Together, they employ about 500 people.
Matt Gutchess, the 5th generation of his family to run the 115-year-old business, said the company is still operating two shifts per day at the main lumber mill in Cortland. But production has been cut by about 15% as sales have dropped to China.
“We were very profitable before the trade war, and the trade war has really eliminated our profitability and the profitability of the entire industry,” Gutchess said.
As sales and production declined at Gutchess Lumber, so has income for independent loggers, truckers, forestry consultants, equipment manufacturers, machine shops and other companies that serve as contractors.
For land owners, and especially farmers, it means less cash flow from the wood lots that they keep as a sort of rainy-day fund.
“A lot of the timber we buy comes from farmers,” Gutchess said. “When it’s time for them to upgrade or buy new machinery for the farm, they sell timber to us.”
The contractors and suppliers prospered as Gutchess Lumber grew to become the second-largest hardwood lumber company in New York.
Exports began to grow in the 1980s with shipments to Europe and Japan. Gutchess said his company supplied a lot of the hard maple used to build bowling alleys in Japan.
By the 1990s, Gutchess began exporting hardwoods to Taiwan and then mainland China, where furniture manufacturers used the wood for products sold for export to the United States.
As the Chinese developed their own appetite for the open-grain of American red oak and ash in the last decade, sales soared to consumers in China. Gutchess said his export business to China grew from nothing in the mid-1990s to about half of the company’s business in 2017.
Gutchess Lumber now sells almost $100 million worth of American hardwoods to China each year. All told, the U.S. hardwood industry exports about $2.2 billion a year in lumber to China.
Matthew Gutchess said he was hopeful, at first, that the tariffs of up to 25 percent for popular hardwoods like red oak wouldn’t have a significant impact on his business.
Importers pay the tariffs on foreign goods and pass the costs along to customers. But some Chinese buyers insisted on a concession, and Gutchess agreed in some cases to split the cost of the tariffs with his clients.
The impact from the lost revenue and sales has rippled through the industry in a way not seen in a decade.
“For hardwoods, it’s like a recession right now,” Gutchess said.
American hardwood sales to China plummeted by $615 million, a drop of 39 percent, since the Chinese imposed the retaliatory tariffs, according to the American Hardwood Export Council, an industry group in Washington, D.C.
Of the council’s 200 member companies, five or six have shut down, “and a couple of bigger ones are teetering,” said Mike Snow, the council’s executive director. “It’s really hard to overstate the damage on the industry.”
Snow said nobody has been able to come up with an accurate count on the number of jobs lost over in an industry that employs 685,000 nationwide.
When the Chinese retaliated with their initial 10% lumber tariffs on Sept. 24, 2018, the cost of American red oak from the Northeast increased overnight from $655 per 1,000 board feet to $720 with the tax. The tariff, paid for by Chinese importers, was increased to 25% in December 2018.
Since then, sales of hardwoods such as red oak have taken a deep dive as Chinese buyers pulled back. About 80 percent of American hardwood exports to China are red oak, used primarily for flooring.
“The Chinese love it,” Snow said. “That was really the savior of the industry after the Great Recession. That spigot essentially being cut off overnight has been devastating.”
Snow, who has taken some 80 trips to China since 1996 to help build up American exports, said the U.S. had a $2.5 billion hardwood lumber trade surplus with China when President Trump started the trade war.
“It’s very frustrating to watch this,” Snow said. “It just seems to be crumbling now.”
He said the U.S. market share in China has been cut almost in half as Chinese buyers look to other countries for their hardwood lumber. At the same time, Russia and the African nation of Gabon (known for its rainforest) have doubled their sales to China.
In Gabon, the boom led to a scandal this spring in which 300 shipping containers of kevazingo wood, which is illegal to export, were found falsely labeled at a port belonging to Chinese companies, the BBC reported.
Some kevazingo trees are more than 500 years old and considered sacred by local people in Gabon. The timber – with a reddish color -- is used to make expensive furniture and musical instruments in Asia.
Snow said a lot of timber coming from Russia is also illegal and non-sustainably cut, taking an environmental toll. He worries that those suppliers may gain a permanent foothold in the Chinese market. “Supply chains, once they are disrupted, are really hard to build back,” Snow said.
Gutchess and the CEOs of other hardwood lumber companies plan to fly into Washington, D.C., in mid-September to lobby Congress for help.
Snow said many of the association’s members have already met with their local member of Congress, only to find out there’s not much they can do as Trump escalates the trade war.
“What we seem to hear across the board is that there’s a lot of sympathy, but these decisions are basically being made tweet by tweet by one person,” Snow said, referring to Trump.
A few weeks before the Chinese imposed the first retaliatory tariffs on the U.S. lumber in September 2018, Trump tweeted that the U.S. tariffs had weakened China and were “working far better than anyone ever anticipated.”
Snow said the uncertainty about the future has also led to slowdown in investment in the lumber industry.
“What you can’t plan for is the goal posts shifting hour by hour, or within the next week, or at 2 in the morning,” Snow said. “Nobody wants to make any kind of investment until there’s some kind of stability in the market.”
The industry has taken its concerns to U.S. Trade Representative Robert Lighthizer. But the Trump administration has not offered trade adjustment assistance or any other hope for relief, Snow said.
Trump suggested in a tweet last week that business owners suffering losses from the tariffs had nobody to be blame but themselves “for bad management.”
Snow said the Trump administration’s stance is surprising because the largest hardwood producing states include Pennsylvania and West Virginia, two states that helped deliver his presidency.
“Most of the hardwood is located in what you would call Trump territory,” Snow said. “And we’re hearing anecdotally from our members that people in that area regret their vote.”
Indeed, Gutchess Lumber’s mill in Cortland County is in the middle of one of the biggest Trump strongholds in New York state.
Trump won the 22nd Congressional District over Hillary Clinton by more than 15 percentage points in the 2016 presidential election.
Trump and his children campaigned in the district last year for former Rep. Claudia Tenney, R-New Hartford, who lost the election to Rep. Anthony Brindisi, D-Utica, in one of the most competitive House races in the nation.
Now Gutchess, a Libertarian who declined to say who he supported for president, is turning to Brindisi for help. The two met at Brindisi’s town hall meeting in Cortland this summer and the congressman later toured the lumber mill.
Brindisi followed up by joining 37 House Democrats and Republicans who asked the Trump administration to help the hardwood lumber industry deal with the retaliatory tariffs.
The House members want Trump to make the industry eligible for the same kind of trade assistance relief that the federal government has already given to soybean farmers hurt by the trade war.
“China is by far the largest importer of American hardwoods, and our trade dispute with the Chinese is ravaging this industry that supports jobs and communities across our country,” the House members wrote in a July 17 letter to U.S. Agriculture Secretary Sonny Perdue.
Trump defended the need for the tariffs Sunday as the U.S. imposed a new 15 percent levy on about $112 billion in Chinese imports, including food, clothing and other consumer goods.
A second round of $160 billion in U.S. tariffs due to begin Dec. 15 will mean that 96.8 percent of all products shipped from China to the United States will be taxed, according to the Peterson Institute of International Economics.
Until now, Trump administration officials said they avoided tariffs on consumer products that could hurt families and slow the economy. J.P. Morgan estimated the tariffs on consumer goods will end up costing the average household about $1,000 a year.
Trump cited the U.S. trade imbalance with China as his motivation for the trade war. The U.S. imported $557.9 billion in goods from China in 2018, while exporting $179.3 billion to China, according to the Office of the U.S. Trade Representative.
Back in Cortland, Dickie Scutt said the trade war is trying his patience with a president he voted for in 2016.
“I would say you’ve proved your point with China,” Scutt said. “They’re not going to sit back and take it. It’s time to think about Americans like myself who have been hurt by this. What’s the end game?”