Trump Takes First Steps In A Trade War With Canada

World

The United States announced that preliminary anti-subsidy duties on imports of Canadian softwood lumber would take effect this week. Late Monday, Commerce Secretary Wilbur Ross confirmed Monday that the Trump administration made the move, escalating a long-running trade dispute between the neighboring countries. Ranging from 3% to 24%, the decision which affects some $5.66 billion worth of imports of the construction material, comes before anti-dumping duties that are slated to be announced June 23, which could raise the total to as much as 30%-35%. The Commerce Department also said it found “critical circumstances,” and hinted that tariffs will be applied not only immediately, but also retroactively 90 days.

The tariff sets an unprecedented tense tone between Canada and the US just as President Trump prepares to renegotiate the 23-year-old North American Free Trade Agreement (NAFTA). Softwood lumber has always been a point of contention between the two nations dating back to the 1980s, but this is a bold move, especially at such a crucial time. Trump has repeatedly stated that changing NAFTA to benefit the US more is one of his top priorities. Given the cordial tone of the visit from Canadian Prime Minister Justin Trudeau though, Trump’s move surprised many.

Canada quickly denounced Trump’s decision, with Trudeau sharing a phone call with Trump Tuesday evening vowing that “Canada will vigorously defend the interests of the Canadian softwood lumber industry.” Ross accused Canada of “already retaliating” against the US well ahead of the lumber duties by restricting imports of US dairy products. Canadian Natural Resources Minister Jim Carr and Foreign Minister Chrystia Freeland countered in a joint statement, saying that the accusations “are baseless and unfounded” and would ultimately hurt Americans by raising US home construction and renovation costs.

Last week Trump called Canada’s dairy protections “unfair,” with Ross following up telling reporters about how Wisconsin dairy producers were now “losing their farms” because of the restrictions. “Apparently Canadians now are coming down and saying: ‘Since you can’t do it anymore, I’ll buy your equipment for 5 cents on the dollar.’”

Here’s a crash course on the dairy crisis Trump and Ross are referring to, because I’ll readily admit I was unfamiliar with it myself. Canada has long maintained a high tariff wall on most dairy products to keep imports out of the country and prop up higher domestic prices. Excluded from NAFTA rules are ultrafiltered milk and other protein-rich dairy products used to make cheese and yogurts, and so US dairy farms had strong sales in these products- an estimated $133 million annually in previous years. However, last year Canadian dairy farmers and producers persuaded regulators to create a new lower-priced class of industrial milk to produce protein products within Canada using Canadian milk. Thanks to this, US imports fell dramatically in 2016.

What is really at stake here is the uniquely Canadian regime of supply management. It governs pretty much every aspect of milk, chicken, and egg production up north. The system depends on three ‘pillars’ to generate market prices: a) a tariff wall to block imports, b) strict quotas that determine how much each farmer can produce and c) fixed prices paid to producers. The system was created in the 1970s to help stabilize farmers’ incomes, but as the market has become global, the system has created friction among Canada and other countries. The World Trade Organization ruled that the high prices paid to Canadian farmers are subsidies, making exports difficult for the Canucks. This may come up in NAFTA negotiations, although Canadian ambassador to the US, David MacNaughton, quickly pointed out that even with supply management, the dairy trade between the two countries favors the US by five to one.

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