Lumber and Dairy Trade Disputes: No Need to Freak Out

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. 

Unfortunately, some people in the media don’t understand all this.  Here’s Breitbart:

President Donald Trump announced that he wanted a 20 percent tax on softwood lumber coming from Canada, telling conservative media he thought the country was treating [the United States] “very unfairly.”

“We’re going to be putting a 20% tax on softwood lumber coming in — tariff on softwood coming into the United States from Canada,” Trump announced during a meeting with conservative journalists. He also signaled he wanted action on Canadian dairy products as well.

“We’re going to start doing lumber in our country, it’s going to mean that farmers are going to start selling milk in our country,” Trump said.

The president’s decision is the latest sign that he will keep his promises on trade deal negotiations. 

To be clear, this has nothing to do with the President keeping any promises.  This is the trade remedy system being used by U.S. industry in the same way they always use it.
 

The Trump administration is hitting Canada with stiff tariffs of up to 24% on lumber shipped into the United States.

These are the first tariffs imposed by President Trump, who during his election campaign threatened to use them on imports from both China and Mexico.

The decision on Monday evening is bound to lead to a standoff and could stoke fears of a trade war between the U.S. and Canada, two of the world’s largest trade powers.

Commerce Secretary Wilbur Ross said the tariffs, or taxes, announced Monday evening were being imposed after trade talks on dairy products fell through.

Well, technically, these are Trump’s first tariffs, but again, they are not some blatant violation of trade agreements, like a 40% across the board tariff on imports would be.  Rather, they are imposed pursuant to domestic law, and authorized by international trade rules in certain circumstances.  What will happen is that Canada will challenge the decision to impose duties, through complaints at the WTO and under NAFTA, and there will be a ruling on whether the Commerce Department acted consistently with trade rules in imposing the duties.  This is trade litigation, not a trade war.  (The sentence about these tariffs being imposed “after trade talks on dairy products fell through” is very misleading.  The lumber tariffs are simply part of the lumber CVD process, and are not linked to dairy issues).
 
Summing up: There may be reasons to panic about Trump’s trade policies at some point, as a number of very radical protectionist measures are under consideration.  However, what happened yesterday with lumber tariffs is just the usual trade remedy nonsense.
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