U.S. - Canada trade relations are in the news, and not in a good way. There are two particular products at issue: lumber and dairy. Here’s what Commerce Secretary Wilbur Ross had to say yesterday:
It has been a bad week for U.S.-Canada trade relations. Last Monday, it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States. Today, in a different matter, the Department of Commerce determined a need to impose countervailing duties of roughly one billion dollars on Canadian softwood lumber exports to us. This is not our idea of a properly functioning Free Trade Agreement.
As background, there are two separate issues. First, on dairy, there are allegations that a Canadian government program, in combination with certain private sector practices, has led to reductions in U.S. dairy exports to Canada. There may be something to this claim, and I can imagine the U.S. might file a complaint at the World Trade Organization. Trump’s tweets may make it sound like there will be some kind of harsh tariff retaliation outside the context of the WTO, but I’m skeptical. We haven’t yet seen any blatant trade law violations of this sort from the Trump administration (and hopefully we won’t), and I think it’s more likely they will go the WTO.
Then there’s lumber. This is a long-standing U.S. - Canada trade dispute (my colleague Dan Ikenson gives the background here), and it is picking up again, as the Department of Commerce made a preliminary determination of countervailable subsidies on imports of softwood lumber from Canada. This is from the fact sheet they issued:
Commerce calculated preliminary subsidy rates for five mandatory respondents: for Canfor Corporation, 20.26 percent; for J.D. Irving, Limited, 3.02 percent; for Resolute FP Canada, Ltd., 12.82 percent; for Tolko Marketing and Sales Ltd. and Tolko Industries Ltd., 19.50 percent; and, for West Fraser Mills, Ltd., 24.12 percent. Commerce established a preliminary subsidy rate of 19.88 percent for all other producers/exporters in Canada.
Before anybody panics, let me reiterate that this is nothing new. Note that there was a preliminary determination on subsidized Canadian lumber back in August 2001, where DOC calculated a single country-wide subsidy rate of 19.31%. While there are a lot of potentially system-destroying trade actions from the Trump administration to worry about, this one is just the usual, routine kind of trade remedy action. Not that I support this sort of thing, of course, but it’s part of the system. Also note that it is just a preliminary determination, subject to a final review by the Commerce Department, as well as a final injury determination by the International Trade Commission. And the parties may be able to work out an agreement, as they have in the post.