Trump Takes Aim at Canadian Lumber, Only to Injure Americans
Thirty years ago, when I worked for the Premier of Canada’s largest province, one of the biggest issues we had to contend with was U.S. efforts to impose tariffs on Canadian softwood lumber – a move that would mostly hurt American consumers. Today that is still an important issue, given the Trump administration’s attempt to impose a 20 percent tariff. And the U.S. position doesn’t make any more sense for U.S. consumers today that it did then.
Basically, the Department of Commerce is alleging that Canadian softwood lumber is underpriced. Unlike the United States, the forest lands the industry uses in Canada are owned by the provinces, which work out the price (or the stumpage fees) they charge softwood companies. According to the Commerce Department and the U.S. lumber industry, the price is low, in effect a subsidy. But if the price represents a subsidy, doesn’t that just mean that Canadian provinces are subsidizing U.S. consumers? If they are willing to make it easier for American families to own a home, why is Washington complaining? If Canadian provinces are undercutting price, aren’t they the ones paying for it? Is it any different really, from Wal-Mart or Target offering a sale to consumers?
Unfortunately, in a world in which lumber companies can afford lawyers, lobbyists and campaign donations, consumers are the last ones governments seem to worry about. By limiting the amount of lumber that crosses the border into the United States, any measure to protect the U.S. softwood lumber industry would boost prices. This would be good news for U.S. producers, who would rake in higher profits. This would be good news for some Canadian lumber producers – those that hold quota and can adjust production or access other markets may benefit. It would be bad news for those that cannot, including most small and family-owned businesses.
But the biggest losers would be U.S. consumers. A recent study by the Canadian Journal of Lumber found that the most recent agreement, struck in 2006 and containing a combination of quotas and taxes, did indeed reduce U.S. lumber imports from Canada by 7.78 per cent. And U.S. lumber producers did indeed gain, to the tune of $1.6-billion. But U.S. consumers lost $2.3-billion.
Under the 2006 agreement, Canadian provinces had a choice: An export tax of up to 15 per cent, depending on monthly lumber prices in the United States – or an export tax of up to 5 per cent plus a quota on total lumber exports. This time around, U.S. lumber industry leaders are pushing for a quota, or at least a bigger portion of quota in the mix. That isn’t surprising. Lobbyists like quotas because they offer more certainty to producers and bigger profits – which translates into higher costs for consumers. Just consider the trade quota that President Reagan’s administration imposed on the Japanese auto industry in the 1980s. The restrictions on automobile imports to the United States increased the average cost of a Japanese car by 16 percent. Japanese car producers ended up benefiting to the tune of billions of dollars – at the expense of American consumers, who had to pay more for cars.
The Trump administration’s attempt to impose duties on softwood lumber will have the same effect: American families will pay more for homes, while lumber companies make a bigger profit. The measure would impose a cost on many Americans to create benefits for a lucky few. Isn’t it time governments thought about doing the opposite?
