Trump’s tariff on Canada softwood may spike prices, slow construction

Canadian timber processor strips bark from log. (PHOTO: David Stanley, Flickr CC)

President Donald Trump’s Commerce Department made news in these parts by slapping a 15 percent tariff on Canadian softwood lumber. Trump says Canadian subsidies create unfair trade conditions, a charge that Canadian officials dispute.

It comes down to how Canada handles the ownership of timber lands. In the U.S. private interests hold most lands, an added expense to the producers. In Canada, the government owns the lands and leases timber rights to the lumber companies. The U.S. claims that’s unfair because the lease rates are often very low.

The move will be celebrated by the American timber industry, including some mills here in Minnesota, but the results could be complicated. Reducing Canadian lumber imports will raise prices. Accordingly, the construction industry says that will make it harder for people to build new homes and could cost jobs.

Ironically, the reduction of lumber supply from Canada and the prospect of higher prices could spur new logging in America. Where? Probably on federal lands, which could be opened by Trump’s Administration. Essentially, doing the same thing as Canada, though benefiting some companies but not all.

This whole debate is a miniature North American version of the debate over putting tariffs on foreign steel shipped from Asia. The primary difference is that Canada subsidizes its lumber industry at a tiny rate compared to China’s fully subsidized steel industry. Also, American consumers might not buy rolled steel directly from the mill, but they do buy lumber. It takes a pretty big disruption for the price to dramatically affect the price of goods made with steel. So while trade battles typically have unintended effects, the effects on lumber prices hit closer to home.

Locally, an intense trade fight between the U.S. and Canada could have other implications. Last year, a UMD study showed that Canadian imports create $483 million in economic activity in Northeastern Minnesota.

Comments

  1. Ranger47 says:

    Not an unexpected tone. Tariffs on unfair steel, good, ’cause “Nolan did it (not!)”. Tariffs on unfair lumber, not so good, ’cause Trump did it. Down deep you love what Trump is doing but just can’t get over Crooked Hillary & Anzelc losing. “Please, say it ain’t so!”

    • Why would I think that, Bob? Please don’t project your partisan obsessions on me. A trade war with Canada hurts Northern Minnesota. It’s unnecessary and avoidable. Pushing around our allies will strengthen our formidable adversaries — pushing more trade to China. This also hurts Northern Minnesota. If you’ve been following, I’ve only stated that steel tariffs will slow the increase in foreign imports — not stop them. I’ve separated my views from other local DFLers here, though I’ve acknowledged the fact that the tariffs do have a short term effect.

      American ports and the Panama Canal are investing heavily in a future that involves gigantic ships from Asia. It is imperative that we send giant ships full of American-made goods the other way or we are in a world of hurt. Picking fights with Canada, Mexico and Australia are a sign of weakness, not strength.

  2. Gary Wilhelm says:

    Agree, it dos not take a rocket scientist but maybe some minimum smarts to figure it out.

  3. Gerald S says:

    The first retaliatory shot by the Canadians has already been fired. The Premier of British Columbia — a major source of Canadian softwood — and Trudeau are discussing a ban on shipping of US “thermal grade” coal through British Columbia. There is a severe shortage of West Coast US coal shipping port facilities, and a large chunk of US coal being shipped to China, Japan, and elsewhere in Asia passes through Vancouver, where there are large coal shipping facilities due to the fact that BC is a coal source, as opposed to any of the US West Coast states, which generally do not want to encourage coal shipments and their associated mess through their cities and have resisted building more port facilities for coal. US western states coal is “thermal grade,” which is lower energy output and higher in pollution output than the BC “metallurgic grade” coal, and consequently cheaper. And of course it so happens that most BC coal meets that “metallurgic” standard. So the regulation would retaliate for the softwood tax and would increase Canadian coal exports to Asia at the same time. Plus it would be a direct hit at Trump, who has promised to revitalize the US coal industry despite decreased demand related to substitution of lower cost natural gas by many American users.

    Of course it is likely that Trump would be displeased with this, and might well figure out some new way to retaliate. That, of course, is what a trade war means.

  4. Gerald S says:

    The Chinese, Japanese, and South Koreans are salivating at the idea of the US starting a trade war with the Canadians. Improved access to Canadian markets as a result of US NAFTA trade advantages becoming defunct and improved access to Canadian natural resources, including oil, other raw materials, and — indeed –softwood due to the US defaulting on existing trade arrangements would be a dream for them.

    It is worth noting that:

    1.) The argument over softwood, which has existed for at least 30 years, is primarily due to differences in how the cost of management of national and state/provincial forests are divided in the two countries. In the US, the Forest Service bears most costs of fire prevention, logging roads, and other costs of management. In Canada, those costs are borne mostly by the timber companies that have the forests under contract. There is no argument on either side that this means that Canadian timber harvest rights should cost less than US rights, but the argument is over how much less. In that 30 plus years, both sides have appealed this issue to the WTO several times, but both sides have chickened out before the cases were litigated, basically because neither side is confident of winning.

    2.) The balance of trade between Canada and the US tends to be very close, with the question of who has the advantage fluctuating depending on the relative value of the two currencies and on the world price of oil and other raw materials that account for a large share of Canada’s exports, as well as the demand for US automobiles and automobile components that are manufactured in Canada. Last year, Canada actually imported more from the US than it exported, but I have read that this year, following slight rises in oil and raw materials and a rebound in auto sales, especially for the light trucks and SUV’s that are predominantly built in Canada, Canada is again slightly ahead. Either way, loss of access to Canadian markets would be a major issue for the US, as would loss of access to Canadian shoppers and customers for Northeast MN businesses.

    3.) Canada is a party to the Trans Pacific Partnership Trade Agreement that we just rejected, and is likely going to continue going forward with bilateral agreements with TPP countries. If they continue moving forward, that will improve access of Asians to Canadian markets and of Canadians to Asian markets. In addition, Canada is moving forward with favored status with the EU. Coupled with increased trade with China and India at a time when Trump is eager to see that trade cut back or cut off for the US, that would undoubtedly help Canada make a major trade war with the US more the MOAD (mother of all duds.) If we throw away our preferred arrangements with Canada, getting them back may not be so easy if they find alternative partners in Asia, Latin America, and Europe.

    This is a very complicated game, not a grade school playground.

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