Canadian Lumber Tariffs

On Monday, President Trump announced that the US is imposing countervailing tariffs on Canadian lumber producers. There has been a great deal of media coverage of this issue since then, including talk about possible Canadian retaliation and a trade war. Here's what you should know:

Bottom line:

The President is touting these tariffs as a sign of his strength on trade. However, these tariffs are the latest round in a thirty-year old trade dispute, and would not have come as a surprise under any President. It is unclear whether the President's strong language on the issue marks any significant change in policy, or is just bluster.

Background:

1: The basic principle of free trade is that imported goods should be able to compete on an even footing with domestic goods. Free trade implies that countries should not put tariffs in place to make imports more expensive or provide subsidies to exports. Under current international trade law, it is sometimes permissible for a country to impose a tariff to offset another country's export subsidy; these are referred to as "countervailing tariffs."

2: Trade disputes over Canadian lumber are not new. This is the 5th round of the dispute; the first round took place during the Reagan Administration. The sequence of events has become predictable. The American lumber industry complains about the Canadian practices. The US government investigates, finds that Canada is engaging in unfair trade practices, and imposes the penalty of countervailing tariffs. Canada appeals that finding—the WTO and NAFTA have a process for resolving disagreements between countries using arbitration. This dispute resolution process usually finds that United States did not act entirely properly in imposing the countervailing tariff. There are rumblings about retaliation. Negotiations take place, and a deal is struck that ends the tariff and reduces the Canadian support for a while. The deal eventually expires and the situation goes back to where it was. The American lumber industry then complains about the Canadian practices, and the entire cycle repeats.

3: The most recent lumber deal expired in 2015, and a one-year moratorium on new complaints ran out in October. The American lumber industry complained to the US government in December. The imposition of these tariffs now is not a surprise, and would not have been a surprise even if it had happened during a Clinton Administration. These tariffs will almost certainly be joined by a second round of tariffs in June, and then the two will be combined and finalized in January. Canada's appeals will not kick off until then.

4: The wildcard in the present situation is how the Administration will ultimately deal with any WTO or NAFTA dispute resolution rulings that go against the United States, and how that will affect both this dispute and the stability of the network of global trade law that has been carefully built over the last several decades. However, it will likely be more than a year before that becomes clear.

Rumors that A Trump Executive Order to withdraw from NAFTA is imminent

The White House is rumored to have entrusted former right-wing website operator Steve Bannon and trade council head Peter Navarro with drafting the executive order to withdraw from NAFTA. While some news analysts are suggesting this is a bluff and that the Administration is using this news to push Congress to support renegotiation, the choice of staff working on the order suggest otherwise. If their serious reputations are tossed aside for positional bargaining, the Administration may have trouble being taken seriously in other discussions at this level.

There is still the question of legal impediments. The law that gives the President the authority to withdraw from trade treaties (Section 125 of the Trade Act of 1974) also requires the Administration to consult with Congress beforehand, but this would require meetings with certain committees that are not currently meeting, since Democrats are refusing to grant a quorum until legal protections for miners are confirmed, which has separately stalled the confirmation of Robert Lighthizer's nomination as U.S. Trade Representative. It's unclear when these committees will meet, or whether the President will wait for them to do so.

Politically, the move is already proving unpopular. Significant portions of the Republican caucus have begun to argue against issuing the order, with groups like the U.S. Chamber of Commerce and several Republican senators arguing that the deal is too important and must at most be amended, but not ended.

The Week Looking Forward

A key question now is what the Canadian response to the lumber tariffs will be, and whether the Administration will actually release the executive order raising countervailing tariffs. Another key question is the impact of this sabre-rattling on trade discussions between the EU and the US, as they discuss resurrecting the discarded Transatlantic Trade and Investment Partnership (TTIP) that was abandoned last year after the Trans-Pacific Partnership treaty (TPP) was blocked by Senate Republicans.

Questions to Ask Your Member of Congress

• Do you think we'll get a better deal from Canada, now that they have their own trade treaty with the EU, than we did before they had it?
• Won't Canada feel it has the stronger hand in negotiating with the US, given their privileged access to European markets?
• As we negotiate with the Europeans, do you think demonstrating willingness to withdraw from treaties will make them less eager to make concessions to secure an agreement?

- Trade Policy Working Group, RISE Stronger

Have comments or something to add? Contact the RISE Trade Policy Working Group at [email protected]