The United States has fired the opening shot in a latest softwood-lumber war against Canada, with the Trump administration announcing its first batch of duties on imported wood in the neighbourhood of 20 per cent.
The move was expected: the historic dispute over lumber pricing has led to once-a-decade trade skirmishes between the neighbours, resulting in American duties, then inevitable court battles, and ultimately negotiated settlements.
What wasn't expected Monday was the enthusiasm with which the new American administration flung itself into the lumber hostilities, touting its incoming countervailing duties as an example of U.S. President Donald Trump's tough, America-first trade posture.
Trump underscored the impending move by announcing it to a gathering of conservative media; Commerce Secretary Wilbur Ross also highlighted it in interviews; and both of them linked the issue to broader trade complaints.
Then came a statement that said U.S. Customs will begin collecting cash deposits from Canadian logging companies because they receive a range of subsidies, most of them allegedly about 20 per cent.
Trump told the conservative media gathering, according to Breitbart News: “We love Canada, wonderful people, wonderful country, but they have been very good about taking advantage of us through NAFTA.”
His commerce secretary went out of his way to link this dispute to broader complaints, about dairy and about NAFTA: “It has been a bad week for U.S.-Canada trade relations,” Ross said.
“This is not our idea of a properly functioning free trade agreement.”
The softwood spat is unfolding amid a much bigger trade issue: the renegotiation of the North American Free Trade Agreement. Despite remarks from the president and his cabinet secretary, neither lumber nor dairy are actually part of the current NAFTA. However, different actors would be pleased to add provisions on one or the other.
What comes next on softwood is a study of separate anti-dumping duties, followed by a final verdict by the U.S. Commerce Department as early as Sept. 7, and then one of three possible outcomes: a negotiated agreement, a surprise retreat from the U.S. government, or a potential years-long court battle.
Canada's government condemned the announcement. In a statement, the federal government called the move unfair, baseless, unfounded and it promised help for its industry.
“The Government of Canada strongly disagrees with (this) decision to impose an unfair and punitive duty,” said Natural Resources Minister Jim Carr.” The accusations are baseless and unfounded.”
He said the action hurts people in both countries, not only Canada's lumber sector that employs hundreds of thousands, but also American home-buyers, who must now pay more for wood.
The buildup to this new lumber war began with the 2015 expiry of a decade-old agreement. It stems from a fundamental, long-standing dispute over whether Canadian companies' access to public land constitutes a subsidy.
The U.S. administration delivered its long-awaited verdict Monday; it concluded Canadian companies benefit from subsidies ranging from three per cent in the case of J.D. Irving Ltd., to a high of 24.12 per cent for West Fraser Mills, with most companies coming in around 19.88 per cent.
Duties will be collected retroactively, too: the U.S. says it will gather them for the previous 90 days. Industry analysts have been expecting the combined duties, Monday's and the upcoming ones, to range between 30 and 40 per cent.
In Canada, pressure will mount on the federal government.
The Liberals have adopted an understated, under-the-radar approach to dealing with Trump. Now they're being pressed into an open dispute, all while dealing with multiple sensitive Canada-U.S. files: softwood negotiations, upcoming NAFTA renegotiations, complaints about Canadian dairy, and a frustrated lumber industry at home.
There are already requests for financial help for Canada's forestry sector. A government source said conversations are underway, but there won't be an immediate announcement on that front.
The Canadian government will wait to see the details of various punitive measures before calculating the aid amount. It took the federal government more than a year to announce the first of two aid packages after duties were imposed in 2001.
The statement from the Canadian government late Monday promised immediate help through existing programs like one that finances exporters, and an innovation-related program to develop the use of wood in tall buildings.
Ministers are also travelling to China, the United Kingdom and Europe to promote market diversification.
A federal-provincial task force intends to meet this week. Quebec Economic Development Minister Dominique Anglade urged the federal government to help forest companies, but said Monday the province will act immediately: “Day 1, we will be there to support the industry,” she said in an interview.
Meanwhile, Ontario named former federal trade minister Jim Peterson as its chief softwood lumber negotiator on Monday. He joins former federal cabinet minister David Emerson who represents B.C. and former U.S. ambassador Raymond Chretien who is Quebec's negotiator.
Unifor union president Jerry Dias called on the feds to respond to the duties to avoid a repeat of the situation when 15,000 were laid off within months of a combined duty of 27 per cent being imposed in the early 2000s.
“It's hard to exaggerate the impact tariffs will have on hundreds of small communities. The federal government needs to have a plan in place and act swiftly,” he said in a news release.
However, provinces aren't in total agreement about financial support.
British Columbia has said it is cautious out of fear that assistance will be construed by the Americans as unfairly helping the Canadian industry. B.C. producers such as West Fraser Timber and Canfor are in a stronger position to weather a U.S. trade battle because they have purchased sawmills in the U.S. and expanded exports to China.
In Central Canada, sawmills tend to be smaller, don't have as much cash flow to pay duties and are therefore more at risk of closing, experts say. That's why Ontario and Quebec producers have been pushing the government to provide loan guarantees to help them pay duties and stay in business.