The Trump administration is taking retaliatory action against Canada over a trade dispute, moving to impose a 20% tariff on softwood lumber that is typically used to build single-family homes.
Continue Reading Below
In an interview Monday, Commerce Secretary Wilbur Ross said the tariff will be applied retroactively and imposed on Canadian exports to the U.S. of about $5 billion a year. He said the dispute centers on Canadian provinces that have been allegedly allowing loggers to cut down trees at reduced rates and sell them at low prices.
The determination that Canada improperly subsidizes its exports is preliminary, and the Commerce Department will need to make a final decision. In addition, the U.S. International Trade Commission will need to find that the U.S. industry has suffered injury. But even a preliminary decision has immediate real-world consequences, by discouraging importers from buying lumber from Canada.
"We tried to negotiate a settlement but we were unable," Mr. Ross said, adding that previous administrations have also been unsuccessful in resolving the dispute.
He said the Trump administration has notified Canada of its decision.
A spokesman for Canadian Foreign Minister Chrystia Freeland, who is in charge of U.S.-Canada relations, wasn't immediately available for comment. Canadian Prime Minister Justin Trudeau said last week that, when it comes to trade irritants, from lumber to dairy, he would present the facts to Washington and aim to work constructively on making improvements to the North American Free Trade Agreement.
Cameron Krauss, senior vice president of legal affairs at the U.S. Lumber Coalition said, "We appreciate today's actions by the Department of Commerce." The group represents large and small American lumber producers.
The trade row between the U.S. and Canada over lumber dates back decades, although the countries struck a deal in 2006 that stopped the U.S. from imposing additional duties. Under that arrangement, which expired in late 2015, Canadian forest producers agreed to accept either a quota on U.S.-bound exports or pay a tax on goods shipped to the U.S. in exchange for no tariffs.
The U.S. lumber industry filed a complaint last fall to the Commerce Department, alleging that Canadian lumber is unfairly dumped -- or sold at less than market value -- into the U.S. market. The complaint also alleges that Canada heavily subsidizes its timber industry by offering Pacific Coast producers access to wood from government-owned land at below-market prices.
The prospect of U.S. duties on Canadian lumber imports has roiled prices so far this year. Lumber futures rose more than 25% in the early months of 2017, peaking at their highest point in over 12 years.
President Donald Trump's heightened rhetoric over Canada's treatment of U.S. lumber and dairy producers in recent days marked a sharp pivot on America's northern neighbor and its second-largest two-way trading partner, after China, with nearly $545 billion in goods and services crossing the border in 2016.
During the election campaign and in the weeks following, Mr. Trump focused much of his trade ire against Mexico, China and Germany. When Mr. Trudeau visited the White House in February, Mr. Trump spoke of the U.S.'s "outstanding" trade relationship with Canada and how only some tweaking would be required to Nafta when it came to Canada.
But pointed comments -- in particular Mr. Trump's dislike of how Canada restricts U.S. producers in accessing its dairy market -- and his move Monday to slap a new tariff on Canadian lumber suggest Nafta's renegotiation could be more complicated than initially believed.
Mr. Ross said those disputes illustrate the shortcomings of the free-trade agreement, which he said has restricted dairy products that Americans can export to Canada, yet allowed Canada to "dump lumber here."
"That is not a very satisfactory agreement," Mr. Ross said.
In 2016, the U.S. ran a trade deficit of $5.28 billion with Canada on products from sawmills. That is a category that includes softwood lumber.
In the lead-up to the decision on lumber duties, U.S.-Canada trade watchers said the Trump administration's move on timber could serve as an opening gambit in laying out what Mr. Trump wants Canada to put on the table as part of the Nafta renegotiations, which have yet to begin in earnest.
The president "is using his skills as a negotiator to set the bar very high and highlight a problematic area for U.S.-Canada trade," said Laura Dawson, director of the Canada Institute at the Washington-based Wilson Center, a nonpartisan think tank.
The issue is important for U.S. lawmakers in the Pacific Northwest, including Sen. Ron Wyden (D., Ore.), the top Democrat on the Senate committee that oversees trade policy -- and the panel that has delayed a vote on Mr. Trump's nominee for U.S. trade representative, Robert Lighthizer.
A spokesman for Mr. Wyden didn't immediately respond to a request for comment.
The Canada dairy dispute has also caught the attention of powerful lawmakers in border states, including House Speaker Paul Ryan, a Wisconsin Republican, and Sen. Chuck Schumer of New York, the Senate Democratic leader.
The Commerce Department handled subsidies and dumping cases in the Obama administration with little fanfare, but Mr. Ross has sought to raise the profile of these ordinary industry cases and work toward filing unilateral cases against trading partners.