U.S. duties hike on Canadian softwood lumber could lead to higher prices on both sides of the border

U.S. - Canada Trade Agreement Photo by Shutterstock/AS-kom

Last week, the U.S. Department of Commerce signalled its intention to raise current duties on Canadian softwood lumber, further aggravating a trade dispute that stretches back more than 40 years.

In its preliminary review, the Department of Commerce estimated that duties on Canadian softwood lumber would rise from 8.05 per cent to 13.86 per cent. A further review will happen this summer after which the increased duties will be implemented.

“U.S. duties on softwood lumber already unjustifiably harm consumers and producers on both sides of the border. Increased duties will further harm the Canadian softwood lumber industry, workers, and communities, and make housing even less affordable for Americans,” said Mary Ng, the Canadian Minister of Export Promotion, International Trade, and Economic Development, in a statement.

Softwood lumber has become one of the most enduring trade disputes between Canada and the U.S., tracing its history back to 1982. The argument has remained the same over the years. American lumber producers have continuously filed complaints to the U.S. government, claiming that Canadian softwood lumber is heavily subsidized. The American companies point to the fact that 94 per cent of Canadian forests are public, meaning Canadian lumber producers avoid costly fees associated with logging on private land.

Agreeing with this stance, the U.S. Department of Commerce has implemented a countervailing duty on Canadian softwood lumber, which is imposed when a domestic industry is materially harmed by subsidies in an exporting country, as well as an anti-dumping duty, which is imposed when a U.S. industry is materially harmed by imported products sold at prices that are lower than the cost of production in the U.S.

But the Montreal Economic Institute (MEI), a non-profit research organization, has found that the only people benefitting from the U.S. imposed duties on Canadian softwood lumber are American lumber producers.

In Canada, the duties have had detrimental effects on the country’s forestry sector. In 2017, when the most recent duties were imposed, Canadian forestry companies saw a $60 million USD decrease in activity. And between 2017 and 2021, the U.S. government collected $5.6 billion in duties from the Canadian forestry industry.

With a limited supply of Canadian softwood lumber being imported, U.S. consumers are also suffering. American lumber producers can’t keep up with demand causing an inflation in lumber prices. According to the MEI, U.S. consumers are hurt 26 times more by the duties than Canadian lumber producers. In 2017, U.S. consumers lost the equivalent of $1.56 billion due to inflated prices caused by the duties.

Beyond the economic impact to its citizens, the U.S. has also been called out on its trade tactics by the World Trade Organization (WTO). A 2020 WTO report found that the U.S. Department of Commerce had acted inconsistently with regard to American countervailing duties and anti-dumping measures.

This has done little to sway the U.S. on its current Canadian softwood lumber duties, though. In response to the Department of Commerce’s most recent assertion that it will be increasing duties, Mary Ng said: “We will continue to work closely with provinces, territories, and industry to defend Canadian interests through all available avenues, including litigation under NAFTA, the Canada-United States-Mexico Agreement, the U.S. Court of International Trade, and at the WTO.”

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