U.S. Secretary of Commerce Wilbur Ross called rumored retaliatory tariffs and trade bans by Canadian lawmakers “inappropriate,” as trade conflicts between the two governments began to heat up in May.
On May 5, Canadian Prime Minster Justin Trudeau announced plans to begin studying the feasibility of prohibiting American businesses from shipping coal from Canadian ports and increasing taxes on U.S. goods in retaliation for new taxes on Canadian softwood lumber sold to American consumers.
The next day, Ross issued a statement warning the Canadian government to abandon those plans, calling the ideas “inappropriate.”
In April, Ross announced the creation of new tariffs—taxes added to the price of incoming goods—on Canadian lumber, as retaliation for government subsidies giving Canadian producers an unfair advantage over their American counterparts.
Most Canadian lumber is harvested by businesses paying severance fees—negotiated in long-term agreements—to the government, instead of directly paying for and owning the property.
Since 1982, U.S. trade organizations have claimed Canadian lawmakers are setting severance fees, known as stumpage, too low, effectively subsidizing Canadian lumber.
Zoltan van Heyningen, executive director of the U.S. Lumber Coalition, an organization representing domestic lumber producers and organized labor groups, says it’s unfair that American businesses have to play by the rules when Canadian businesses don’t.
“In the United States, 80 percent to 90 percent of the fiber is owned by private owners and is priced according to market realities,” van Heyningen said. “The clash comes when Canada takes subsidized product and ships it into our market. Canadian jobs displace U.S. jobs when Canadian products displace U.S. products.”
Claims Little Consumer Harm
Increasing the cost of imported lumber won’t affect American consumers very much, van Heyningen says.
“In an average $350,000 home, the cost of the kind of lumber that’s actually subject to this case currently costs $6,000,” van Heyningen said. “If Canadian lumber makes up one-third of the U.S. market, one-third of $6,000 is $2,000, and 20 percent of that is $400, so $400 would be the absolute maximum impact. That assumes that that amount is not absorbed by the Canadian lumber distributor or homebuilder, but completely by the consumer.”
Stuck in a Rut
Simon Lester, a trade policy analyst with the Cato Institute, says the new tariff is just another verse in the same old song.
“Temporarily, what we’re going to have are duties, but eventually, we’re going to have some kind of settlement,” Lester said. “They start with tariffs and they litigate a bit, then they come up with a settlement: The Canadians agree to keep prices above a certain amount, [and] if they fall below it, they impose an export tax. In the long run, they’ll come up with a settlement that doesn’t have quite the price impact as duties, but it will keep lumber prices slightly higher than they otherwise would have been.”
Easy Way Out
Increasing the cost of foreign goods for U.S. consumers makes domestic businesses feel good but does little else, Lester says.
“An alternative to imposing duties on lumber would be to bring the case directly to the [World Trade Organization], where they can prove certain subsidies and/or their effects actually violate WTO rules,” Lester said. “Instead, the simpler path is for U.S. industries to ask that special duties be imposed. That gets them the immediate protection they want, but it doesn’t change the practice.
“We’re just caught up in an endless cycle of imposed tariffs, litigated outcomes, settlements, and then it starts over again,” Lester said.