The Trump administration has fired the first broadside in its insane battle against bilateral trade imbalances. And its aim was not what most people expected. Canada, not China, is the target of the Trump trade team’s wrath.
Commerce Secretary Wilbur Ross has just announced a new 20% tariff on imports of Canadian softwood lumber. The US currently imports about $5.66 billion worth of softwood lumber from Canada every year. It is an essential input for the American construction and home repair industries.
This move is ostensibly in response to a petition from American lumber producers, who have long complained that Canada’s system of “stumpage” (charges for logging on Canada’s government-owned lands) amounts to an unfair subsidy. The US has never managed to prove that Canada’s pricing is unfair: it has lost legal challenges at the World Trade Organisation and under NAFTA. But American lumber producers continue to complain, and American governments continue to launch futile legal action against Canada in response to their complaints. Viewed in this light, this move simply looks like yet another attempt to pacify American lumber producers.
But anyone who was paying attention to Trump’s pronouncements even before he was elected would have seen this coming. Canada was the first of six countries listed by Peter Navarro and Wilbur Ross as the primary “cause” of the USA’s trade deficit:
Consider that roughly half of our trade deficit is with just six countries: Canada, China, Germany, Japan, Mexico and South Korea. If we look at the bilateral relationships of America with each of these countries, improvement in our trade balance is clearly achievable through some combination of increased exports and reduced imports, albeit after some tough, smart negotiations – an obvious Trump strength.
The paper from which this quotation comes was issued in September 2016. It is the blueprint for President Trump’s trade policy. It was therefore always inevitable that Canada would be targeted for protectionist measures. And given the long-running dispute between Canada and the USA over softwood lumber pricing, the lumber industry was bound to be first in line. It will not be the last.
Of course, anyone who has a basic grasp of international trade economics knows that the USA’s trade deficit is not “caused” by any country, however large its trade surplus versus the USA. The USA’s trade deficit arises from the interplay of finance and trade among all the countries in the world. In particular, as I have explained elsewhere, it is an inevitable consequence of the dominance of the US dollar in international trade. The USA’s trade deficit, like its fiscal deficit, reflects the global hegemony of the USA.
But Trump’s trade team doesn’t have even a basic grasp of international trade economics. Peter Navarro has a Ph.D in economics from Harvard, but that doesn’t make him an expert on trade: his doctoral thesis was on why corporations donate to charity. And Commerce Secretary Wilbur Ross’s background is in business, not economics. Both are protectionist to the core, as is Trump himself. All three are practising voodoo economics of the worst kind, to the detriment of the people they claim to serve.
President Trump’s Tariff On Canadian Softwood Lumber Imports Will Hurt America Most – Forbes