The U.S. and Canada are locked in a dispute over softwood lumber, the latest entanglement in one of the thorniest commerce spats between the world’s two largest trading partners. The U.S. escalated the row by slapping tariffs of up to 24.1 percent on Canadian lumber, saying the government provides unfair subsidies to producers. If history is any guide, consumers will be paying more for wood.
1. What’s the battle over?
The U.S. lumber industry alleges Canadian wood is heavily subsidized and that imports are harming American mills and workers. Canadians argue the U.S. depends on its lumber for home construction and won’t be able to meet demand without its neighbor to the north. It’s a rift that goes back decades.
2. So why is it flaring now?
A group representing U.S. companies filed a petition in November asking Washington to impose punitive tariffs. The U.S. Commerce Department announced April 24 that it will levy countervailing duties ranging from 3 percent to 24.1 percent on Canadian lumber producers including West Fraser Timber Co. The figures came in below some analyst forecasts. They’re calculated based on the department’s assessment of Canada’s subsidy. Further charges may be applied when the department releases its decision on anti-dumping duties by June 23.
3. What is softwood, anyway?
Softwood lumber is made from trees that have cones, such as spruce, pine and fir. Canada’s biggest export market is the U.S., where it is primarily used in home construction. Softwood lumber accounts for 20 percent of the value of Canada’s forest-product exports. The country shipped 68 percent of its output in 2016, 78 percent of which went to the U.S., according to Bloomberg Intelligence.
4. How far back does this go?
It started long before President Donald Trump’s tough talk on the North American Free Trade Agreement. In the early 1980s, U.S. companies claimed Canada gave its producers access to cheap timber on government land. The Softwood Lumber Agreement, signed by both nations in 1996, established tariffs and quotas on Canadian imports and relaxed tensions. A follow-up accord expired in October 2015, and Canada was given one year to ship lumber tariff-free while both parties were negotiating a new deal.
5. Why haven’t they reached a new deal?
One sticking point is market share. The U.S. Lumber Coalition backs the position that any new agreement should cap the market share of softwood imported from Canada. Producers in British Columbia want to be allowed to choose between paying an export tax or staying within a cap. That’s similar to the structure of the agreement that was in place from 2006 to 2015.
6. Will Canada fight back?
Canada views the tariff as an “unfair and punitive duty” imposed on “baseless and unfounded” allegations, according to a 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. The nation has challenged similar U.S. actions in the past under the dispute resolution provisions of the World Trade Organization, Nafta and before U.S. courts, according to Canada’s trade ministry.
7. What’s the potential impact?
The trade spat has already contributed to a more than 20 percent surge in wood prices since the U.S. election. The penalties could increase home construction costs even more. Lumber futures in Chicago have jumped by more than a fifth this year on the expectation of the duties. Canadian companies such as West Fraser Timber and Canfor Corp. may see their share prices drop, CIBC analyst Hamir Patel said in an April 23 note.
The Reference Shelf
- U.S. Department of Commerce fact sheet with its calculation of the subsidies.
- A QuickTake explainer on Canada’s economy.
- Canada is readying for lumber wars.
- U.S. homebuilders could be on the losing side.
- The U.S. and Canada are also squabbling over dairy.
Why the U.S. and Canada Are Fighting About Lumber: QuickTake Q&A – Bloomberg