Canada Reacts Coolly to U.S. Move on Lumber

By Paul Vieira Features Dow Jones Newswires

Canadian Prime Minister Justin Trudeau said Tuesday he intended to speak firmly yet reasonably with President Donald Trump about the U.S. slapping a 20% tariff on softwood lumber from Canada and Mr. Trump's escalating rhetoric over Canadian dairy trade practices.

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Mr. Trudeau's comments suggested he was opting to dial down the rhetoric and emphasize the positive aspects of the U.S.-Canada relationship, as he has been inclined to do so far in dealing with the Trump administration's plans to overhaul North American trade.

The prime minister said the U.S. and Canada have a history of resolving policy differences, and he expected to do the same this time around.

Trade irritants "are nothing new," Mr. Trudeau said in an interview with a radio station in the southwestern Ontario city of Kitchener. He said he would defend Canada's interests and looked to speak to Mr. Trump in the near future.

Canada will "deal firmly and reasonably with the U.S.," he said, adding he wanted to "emphasize that the U.S. and Canada have a deep and strong relationship."

His cordial tone stood in contrast to a Tuesday morning tweet from Mr. Trump, in which he said his administration was considering retaliatory measures after Canada's decision to change market rules to effectively exclude U.S.-produced ultra-filtered milk, which is used in cheese production.

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"Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!," Mr. Trump tweeted.

Speaking Tuesday to reporters at the White House, Commerce Secretary Wilbur Ross said the lumber issue was a longstanding problem and that the administration was following up on an already existing case.

"This was not a presidential decision to do the softwood lumber," Mr. Ross said when asked whether the dispute would harm an otherwise positive relationship between Messrs. Trump and Trudeau and marked a departure from Mr. Trump's earlier comments that U.S.-Canada trading ties needed only "tweaking."

"This was a decision that arose from a trade case that was under way," Mr. Ross said. "It doesn't have anything to do with the personal relationship between Mr. Trudeau and the president."

Still, developments in the past week mark a sharp shift in Mr. Trump's tone toward Canada. Until now, most of his criticism over the North American Free Trade Agreement has focused on Mexico, which runs a large trade surplus with the U.S.

The Canadian government said Monday it "disagrees strongly" with the Commerce Department's decision to slap a 20% tariff on softwood lumber, arguing it was predicated on "baseless and unfounded" allegations from the U.S. lumber industry.

Canada's Liberal government has promoted freer trade as a way to improve living conditions for the country's middle-income households, and recently completed an agreement on liberalized trade with the European Union. It was one of the countries involved in the Trans-Pacific Partnership talks, which were definitively shelved by Mr. Trump, and has been considering a free-trade pact with China. Canadian policy makers generally view trade pacts as an important way to generate faster growth.

About 75% of Canadian exports -- the equivalent of 20% of its gross domestic product -- are U.S.-bound.

The 20% tariff on Canadian softwood is expected to have a marginal impact on the Canadian economy. Economists at National Bank Financial say softwood-lumber exports to the U.S. represents just 1.2% of all Canadian exports, and that the forestry sector accounts for only 0.3% of all Canadian jobs.

"While not significant in itself, this latest chapter in the softwood lumber dispute could give clues about how hard-line the Trump administration aims to be when renegotiating Nafta," the firm said.

Even amid a string of stronger-than-expected economic data in recent months, the Bank of Canada has remained cautious about the outlook, signaling it has no plans to raise its benchmark interest rate from 0.50%. That stance comes in part, it said, because changes to U.S. trade policy represent a significant threat to the country's growth.

(END) Dow Jones Newswires

April 25, 2017 15:48 ET (19:48 GMT)