Sawnwood and paper are sought-after export goods

The planned US tariffs on imported products will presumably also affect products made from wood that come from the EU or Germany. How intensive is the timber trade between the USA and Germany and how strongly would Germany's wood industry be affected by rising tariffs? An analysis.

Around two thirds of German exports in the period 2015 to 2024 were to EU countries. A further 30% were exported to other countries (excluding the USA). Exports to the USA increased from just over three per cent in 2015 to just over five per cent in 2023 and 2024. In the two previous years, the share was even slightly higher at 5.7 per cent (2021) and 6.4 per cent (2022). 

The ratio for imports is as follows: In the period from 2015 to 2024, companies in the German wood and paper industry sourced a good three quarters of their products (76 to 79 per cent) from EU countries. This share, and therefore the importance of the EU as a market, is therefore slightly greater than for exports. Imports from other countries excluding the USA accounted for around one fifth (19 to 23 per cent). Over the past ten years, around two per cent of imported wood products for the German market came from the USA, which has remained comparatively constant.

There was strong growth in exports of coniferous sawnwood to the USA. While this product group hardly played a role in 2015, it has been the product group with the highest net exports in foreign trade with the USA since 2020. 25 to 30 per cent of all German coniferous sawnwood exports are currently exported to the USA.

Paper and paperboard also account for a high proportion of exports to the USA. Compared to other export markets, however, the USA only plays a subordinate role: around five per cent of all German paper and paperboard exports go overseas.

The situation is similar for finished wood products and paper products: In relation to total German exports of these product groups, the US share accounts for less than five per cent - although the product groups each account for a good ten per cent of exports to the USA. The difference is even greater for non-coniferous sawnwood and fibreboard, which are in high demand in the USA. Almost ten per cent of exports of this product group go to the USA. However, these products are only of minor importance for overall trade. 

Pulp is of greater importance when it comes to imports from the USA. They account for around half of all imports from the USA, followed by paper products with around a fifth. Within the product groups, imports from the USA play a particularly important role for non-coniferous sawnwood and currently also for pellets. Both products currently account for around ten per cent of total imports of the respective product group.

Trade with the USA is therefore very important for some product groups. Overall, however, as in the agricultural sector, the EU countries are Germany's most important trading partners for wood products. Overall, more than ten times as many wood products are currently exported to the EU as to the USA.

The US administration aims to increase domestic wood production to create higher added value and more jobs at home to strengthen the US industry and make it less dependent on wood imports. For example, the USA has been importing large amounts of coniferous sawnwood from Canada for years. Now, there are accusations that Canada is subsidising domestic wood and therefore selling it too cheaply to the USA.
To protect the domestic wood industry from cheap imports of wood products from other countries, various options are currently being discussed:

• Increase in domestic wood production: The US administration has announced that it will make USD 200 million available to increase domestic wood production. Among other things, logging in national forests is to be increased. This could increase the supply of domestic wood in the USA. The extent to which this will also stimulate private investment in the US wood industry cannot be reliably estimated at present.
• Lower interest rates: Interest rate policy can be used to stimulate market developments. A low interest rate would initially reduce construction costs and thus increase demand for construction products, including those made of wood. However, a significant reduction in the key interest rate, as desired by the US administration, would in turn significantly increase the risk of inflation. Such a move is therefore not expected at present. So far, the US Federal Reserve has acted independently of the US administration's ideas.
• Import duties on wood products: Higher tariffs on wood products are the most prominent way to strengthen the US wood market. However, a classic effect of import tariffs is higher costs for consumers in the USA. As a large proportion of wood in the USA is used to build houses, import duties would make construction costs more expensive. This in turn would dampen the overall demand for wood - instead of increasing it as desired.

However, the interplay between supply and demand under rising import tariffs is much more complex than it might appear at first glance. Depending on how the aforementioned parameters change, this would also have an impact on the German wood market. Particularly affected: Manufacturers and traders of coniferous sawnwood, which has been exported to the USA in large quantities in recent years.

Import duties on wood products from the EU would initially increase prices for German exports to the USA and thus potentially reduce sales. However, more complex interactions in the international wood market must also be taken into account. If, for example, only the tariffs on Canadian sawnwood were to increase significantly, this could be to the advantage of sawnwood from Germany. This is because higher import duties on Canadian sawnwood would presumably increase demand for German sawnwood – and thus also prices in Germany. 
At the Thünen Institute of Forestry, we have systematically analysed the influence of all these possible price changes on the demand for imports of wood products to the USA. The results:

In order to assess the potential consequences of changing US import tariffs on wood products for international trade in general and Germany in particular, we analyse the impact of prices on US import volumes. This allows us to estimate the impact that an increase in US import tariffs on wood products - and thus an increase in the price of the products - would have on US import volumes.

Armington elasticities are central to this. These elasticities measure the extent to which consumers are willing to replace their domestic demand with imported goods – especially if the price ratio between domestic and imported products changes. In the context of the wood market, Armington elasticities reflect how price-sensitive consumers are when choosing between domestic and imported timber products. These elasticities therefore show to which extend demand falls if, for example, the import price rises.

Armington elasticities are estimated mathematically. The figure below shows the results of these estimates for assumed increases in US import tariffs of between zero and 200 per cent for selected countries. It becomes clear that imports from Germany or Canada, for example, would react less sensitive to US tariffs than imports from other countries. This is primarily due to the preference of US consumers for products from these two countries.

A tariff of 25 per cent, for example, would have the following effects: Exports of German wood products to the USA would be reduced by  around 14.8 per cent. This means that Germany would be proportionally less affected than other countries. For imports from Canada, our calculations show that the bilateral trade flow would be reduced by around 17.8 per cent. However, as Canadian exports to the USA are significantly higher than German exports, the overall effect on US imports is significantly greater than the decline in German exports on US imports.