Exchange Rates and the Competitiveness of the US Timber Sector in a Global Economy

Abstract

This paper examines the competitiveness of the US timber industry under different exchange rate policies using a dynamic optimization model of global timber markets. We assume that exchange rates affect the cost structure of harvesting and managing forests and simulate the model for baseline conditions and four additional exchange rate policies. Two policies consider a strengthening United States dollar scenario and two policies examine weak South American currencies. Recently South America has increased its share of global timber production and is shipping increasing quantities of timber to the Unites States. The results indicate that US competitiveness in the forestry sector is sensitive both to strong US $policies and to the weak currency policies pursued by South American governments. A 20$ compared to all other currencies can reduce harvests by 4 7% in the United States over the next 50 years, while a similar reduction in currency values in South America can reduce U.S. production by around 0.4%. In dollar terms, each additional cubic meter of wood produced in South America due to currency policies can reduce producer surplus in the United States by $100.International Relations/Trade,