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Trump Slaps Duty on Canada Lumber, Intensifying Trade Fight

April 25, 2017
Canada fired back, saying the tariff is an "unfair and punitive duty" imposed on "baseless and unfounded" allegations.

U.S. President Donald Trump intensified a trade dispute with Canada, slapping tariffs of up to 24% on imported softwood lumber in a move that drew swift criticism from the Canadian government, which vowed to sue if needed.

Trump announced the new tariff at a White House gathering of conservative journalists, shortly before the Commerce Department said it would impose countervailing duties ranging from 3% to 24.1% on Canadian lumber producers including West Fraser Timber Co.

“We’re going to be putting a 20% tax on softwood lumber coming in -- tariff on softwood coming into the United States from Canada,” Trump said Monday, according to a tweet by Charlie Spiering, a White House correspondent for Breitbart News. A White House official confirmed the comment.

The step escalates an economic battle among neighboring countries that normally have one of the friendliest international relationships in the world. U.S. Commerce Secretary Wilbur Ross amplified Trump’s remarks in a statement afterward that also referenced a fight over a new Canadian milk policy that U.S. producers say violates NAFTA.

“It has been a bad week for U.S.-Canada trade relations,” Ross said, adding “it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States." He said the Commerce Department “determined a need” because of unfair Canadian subsidies to the lumber industry to impose “countervailing duties of roughly one billion dollars.”

In a dig at the North American Free Trade Agreement, which Trump has said he wants to renegotiate, Ross added, “This is not our idea of a properly functioning Free Trade Agreement.”

Canada fired back, saying the tariff is an "unfair and punitive duty" imposed on "baseless and unfounded" allegations, according to a joint statement from Foreign Minister Chrystia Freeland and Natural Resources Minister Jim Carr. The measures will hurt workers on both sides of the border and will raise U.S. home prices, they said.

Litigation Possibility

Canada "will vigorously defend the interests of the Canadian softwood lumber industry, including through litigation," the ministers said, adding they nonetheless "remain confident that a negotiated settlement is not only possible but in the best interests of both countries.”

The Canadian dollar dropped to a 4-month low against the U.S. dollar after Trump announced the tariff, trading down 0.40% to C$1.356. The loonie traded at 73.8 U.S. cents.

In the latest chapter of a trade dispute that has been simmering for decades, the U.S. Department of Commerce in a preliminary determination Monday said it has calculated that Canada subsidizes Canfor Corp. by 20.26%; West Fraser Mills Ltd. by 24.12%; Tolko Marketing and Sales Ltd. and Tolko Industries Ltd. by 19.5%; Resolute FP Canada Ltd. by 12.82% and J.D. Irving Ltd. by 3.02%. It set a preliminary subsidy rate of 19.88% for all other producers in Canada.

Higher Duties Anticipated by Some

The so-called countervailing duties, which counter what the U.S. considers Canadian subsidies, came in below some analyst expectations. CIBC analyst Hamir Patel forecast the initial combined countervailing and anti-dumping duties could reach 45% to 55%, he said in an April 23 note. The U.S. may also apply anti-dumping duties if it determines Canadian firms are selling for below costs. That decision is expected in June.

“It definitely could’ve been a heck of a lot worse,” Kevin Mason, managing director of ERA Forest Products Research said by phone from Kelowna, British Columbia. “I think a lot of people were bracing for a higher duty.”

Canadian companies such as Vancouver-based West Fraser and Canfor Corp. will be able to weather the current duty level as lumber prices are high, Mason said. Lumber prices may actually decline in order to curtail Canadian shipments to the U.S., he said.

The duties are unwarranted and the determination “is completely without merit,” Susan Yurkovich, president of the B.C. Lumber Trade Council, said in a statement. The allegations are the same made in previous softwood trade battles which were rejected and overturned by independent NAFTA panels, she said.

The industry group represents companies such as Canfor, West Fraser and Interfor Corp.

Artificial Supply Constraints

“This new trade action is driven by the same protectionist lumber lobby in the U.S. whose sole purpose is to create artificial supply constraints on lumber and drive up prices for their benefit, at the expense of American consumers,” Yurkovich said.

A detente in the lumber trade dispute expired in October, and a new agreement isn’t on the horizon. That’s contributed to a more than 20% surge in wood prices since the U.S. election.

Old Dispute

Since the early 1980s, the U.S. has argued with Canada over how much softwood lumber the country’s suppliers can sell in the U.S. and at what price. The two nations have negotiated temporary agreements in previous years over softwood, which comes from trees that have cones, like pine or spruce, and is preferred by builders for constructing home frames.

But hammering out a new deal has been slow-going for the Trump administration, which still doesn’t have its chief trade negotiator in place.

After the latest deal lapsed, a group including U.S. timber companies petitioned an independent government agency and the U.S. Commerce Department for duties on lumber imports from Canada, saying the country unfairly subsidizes its own industry, costing profits and jobs.

While signing an executive order Thursday on steel imports, Trump digressed to note that during a trip to Wisconsin earlier in the week, he’d called Canada’s cutting of prices of dairy ingredients "a disgrace" that’s hurt farmers in Wisconsin and New York. He added that the "disgrace" extended to "what’s happening along our northern border states with Canada, having to do with lumber and timber."

While beneficial for U.S. lumber suppliers, tariffs could lead to even higher costs for companies that buy wood, such as builders and mattress makers, which use it in box springs.

Most of the softwood in Canada is owned by provincial governments, which set prices to cut trees on their land, while in the U.S. it’s generally harvested from private property. The fees charged by Canadian governments are below market rates, creating an unfair advantage, U.S. producers say. Canada disputes that.

Robert Lighthizer, Trump’s nominee to be the next U.S. Trade Representative, said at his confirmation hearing last month that he views the lumber dispute as the top trade issue between the U.S. and Canada. Oregon Democratic Senator Ron Wyden told Lighthizer the fight is the “longest-running battle since the Trojan War.”

By Jennifer Epstein and Joe Light

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