Made in the USA: Could new tariffs on Canadian softwood lumber backfire?

Home Inside FCNews Made in the USA: Could new tariffs on Canadian softwood lumber backfire?

April 24/May 1, 2017: Volume 31, Issue 23

The Trump Administration recently announced a new 20% tariff on imports of Canadian softwood lumber. The move is in response to U.S. lumber industry objection to the low Canadian stumpage rates (charges for logging on Canada’s government-owned lands) and transportation costs—something the President described as an unfair advantage. In short, U.S. producers contended Canada was subsidizing its lumber industry by allocating timber in a non-competitive manner.

While softwood (cedar, pine, spruce, Douglas fir, etc.) is not used in the manufacture of solid hardwood flooring, the materials are nonetheless utilized by many American construction and home repair industries—sectors that, combined, employ thousands of Americans. The U.S., which currently imports more than $5.6 billion worth of softwood lumber from Canada every year, is heavily dependent on the import of timber from that country. Domestic supplies, analysts say, are insufficient to meet customer needs.

While President Trump sees the move as a victory, based on sentiments he expressed during the campaign, some critics believe the tariffs could do more harm than good. In an opinion piece written for Forbes magazine, France Coppola, a 17-year banking industry veteran explained how the move could backfire.

“The Canadian dollar has already dropped sharply vs. the U.S. dollar: the weakness of the loonie, if sustained, will mitigate the impact of the tariff on Canadian producers, while the dollar’s strength will make all imports from Canada—apart from softwood lumber—cheaper. The tariff will, therefore, raise input costs for lumber users and make it harder for other American businesses to compete with imports from Canada. It is obviously intended to hurt Canada, and it will of course have some impact there. But the principal pain will be felt by American citizens.”

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