Trump’s Trade War Takes Dead Aim At Canada
President Trump has started his trade war by slapping maximum of 24% countervailing duty on Canadian softwood lumber entering the United States. This is yet another episode in this long-standing dispute with Canada that goes back more than two decades. The crux of the issue is the alleged subsidies provided to the Canadian industry. The vast majority of Canada’s softwood production comes from provincially-controlled lands. The Americans allege that the royalties or stumpage fees are too low and hence are a form of export subsidy. Over the years various dispute–resolution panels have questioned the U. S. argument regarding injury and dumping. In 2004, the International Trade Commission found in Canada’s favor, citing that imports did not harm the U.S. industry.
President Trump chose an easy target in the Canadian softwood exports to start his trade wars. After all, the U.S. trade deficit with Canada is minuscule compared to that of China, so picking on the little kid in the neighborhood is what bullies usually do. (As President Trump has found out, starting a trade war with China is entirely a more difficult and dangerous course to follow).
Given the long legal history involving U.S actions against imported softwood, it is an easy sell on the part of the Trump administration to resurrect the issue. No pun intended, but the Trump administration chose a very “soft” target to start this trade war. In the words of Bob Rae, a former federal parliamentarian,
The punitive tariff he has just imposed on lumber is egregious protectionism. It is intended to protect some U.S. producers and to put some Canadian companies out of business. The federal and provincial governments have an obligation to sustain the Canadian lumber industry through its fifth time of torment since the 1980s. The U.S. has never won a major trade complaint on lumber. They are simply using raw power.[1]
Let’s put this dispute into some economic context.
From a Canadian perspective, softwood lumber exports to the United States amount to 3 per cent of total Canadian exports, so the aggregate impact will not be significant. The Canadian dollar barely budged on the announcement of the tariff, suggesting that it does not move the needle regarding Canada’s overall trade balance. This in no way minimizes the regional impact of the tariff in British Columbia, Ontario and Quebec; there will be a lot of jobs lost. Both Ottawa and the provincial governments will need to provide some adjustment assistance in the short term to ease the impact. Of course, any measure to support the industry must not aggravate the current situation by introducing new policies that may be construed as subsidies. Meanwhile, we can expect Canada to launch a legal challenge to this unilateral decision very soon.
From an American perspective, U.S softwood imports from Canada are about $5 billion a year and that means that the tariff will add $1 billion of new costs for the U.S. housing industry, at a time when new home construction costs have been increasing at rates faster than the overall consumer price index. According to the National Association of Home Builders, Canada supplies close to 30 percent of the U.S. softwood needs. The industry expects the average single-family home price to increase by about $1,300 or an additional 3-5 percent. As the U.S. home building industry recovers from the near collapse of the industry in the 2008 financial crisis, it is hard to see how adding costs to the home buyer makes “America Great Again``.
Disclosure: None.