Picture: ISTOCK
Picture: ISTOCK

Washington — US 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 US commerce department said it would impose countervailing duties ranging from 3% to 24.1% on Canadian lumber producers, including West Fraser Timber. "We’re going to be putting a 20% tax on softwood lumber coming in — tariff on softwood coming into the US from Canada," Trump said on 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 neighbouring countries that normally have one of the friendliest international relationships in the world. It follows a fight over a new Canadian milk policy that US producers say violates the North American Free Trade Agreement (Nafta).

"Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!" Trump said in a tweet on Tuesday morning. "It has been a bad week for US-Canada trade relations," US commerce secretary Wilbur Ross said in a statement on Monday, adding "it became apparent that Canada intends to effectively cut off the last dairy products being exported from the US".

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 Nafta, which Trump has said he wants to renegotiate, Ross added, "This is not our idea of a properly functioning free trade agreement".

Canada response

Canada fired back, saying the tariff is an "unfair and punitive duty" imposed on "baseless and unfounded" allegations, according to a joint statement from Canadian foreign minister Chrystia Freeland and natural resources minister Jim Carr. The measures will hurt workers on both sides of the border and will raise US home prices, they said.

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 four-month low against the US dollar after Trump announced the tariff, falling as much as 0.6% to US73.6c.

In the latest chapter of a trade dispute that has been simmering for decades, in a preliminary determination on Monday, the US department of commerce said it has calculated that Canada subsidises Canfor Corporation by 20.26%; West Fraser Mills by 24.12%; Tolko Marketing and Sales, and Tolko Industries by 19.5%; Resolute FP Canada by 12.82%; and JD Irving by 3.02%. It set a preliminary subsidy rate of 19.88% for all other producers in Canada.

Anti-dumping

The so-called countervailing duties, which counter what the US 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 US may also apply anti-dumping duties if it determines that Canadian firms are selling for below costs. This decision is expected in June.

"It definitely could’ve been a heck of a lot worse," Kevin Mason, MD 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, 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 US, he said.

The duties are unwarranted and the determination "is completely without merit," Susan Yurkovich, president of the BC 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.

"This new trade action is driven by the same protectionist lumber lobby in the US 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 détente in the lumber trade dispute expired in October, and a new agreement isn’t on the horizon. This has contributed to a more than 20% surge in wood prices since the US election.

Old dispute

Since the early 1980s, the US has argued with Canada over how much softwood lumber the country’s suppliers can sell in the US and at what price. The two nations have negotiated temporary agreements in previous years over softwood, which comes from trees that have cones, such as 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 US timber companies, petitioned an independent government agency and the US commerce department for duties on lumber imports from Canada, saying the country unfairly subsidises its own industry, costing profits and jobs.

While signing an executive order on 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".

Higher costs

While beneficial for US 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 US it’s generally harvested from private property. The fees charged by Canadian governments are below market rates, creating an unfair advantage, US producers say. Canada disputes this.

"It is regrettable that our American neighbours have chosen to renew this long-standing dispute which creates so much uncertainty for lumber market participants," West Fraser Timber CEO Ted Seraphim said on Monday in the company’s earnings statement, prior to the confirmation of the duty.

Robert Lighthizer, Trump’s nominee to be the next US trade representative, said at his confirmation hearing last month that he views the lumber dispute as the top trade issue between the US and Canada. Oregon Democratic senator Ron Wyden told Lighthizer the fight is the "longest running battle since the Trojan War".

Bloomberg

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