The U.S. is setting the stage to heighten one of its most-contested trade battles with Canada this month as a decision over lumber duties nears.
The U.S. Department of Commerce is scheduled to announce whether it will impose preliminary anti-dumping duties on Canadian softwood lumber by the end of June. The U.S. already escalated the row in April by slapping tariffs of up to 24.1 percent on Canadian shipments. This month’s decision may bring the combined duties to more than 30 percent according to RBC Capital Markets. The fees would be levied against companies such as West Fraser Timber Co. and Canfor Corp.
While the spat between the world’s two largest trading partners goes back decades, tensions have intensified amid U.S. President Donald Trump’s tough talk on the North American Free Trade Agreement. The dispute over softwood lumber was reignited in November when the U.S. lumber industry filed a petition asking for duties. The group alleges Canadian wood is heavily subsidized and imports are harming U.S. mills and workers. Lumber futures in Chicago have surged amid concerns that the trade battle will disrupt supplies.
“I think it’s the consistent U.S. position, and probably pumped up with Trump, to hit the Canadians hard off the bat, force them to the negotiation table by hurting them financially,” said Paul Quinn, an analyst at RBC Capital Markets in Vancouver. “You’re going to see less shipments out of Canada as a result of a 30 percent tax.”
Canada has pledged to fight the duties and announced it will assist lumber producers with a C$867 million ($642 million) aid package. While talks with the U.S. are continuing, the two sides “are still quite far apart,” Foreign Affairs Minister Chrystia Freeland said in Montreal on Monday.
Canada is the world’s largest softwood lumber exporter and the U.S. is its biggest market. The dispute has contributed to a more than 18 percent surge in wood prices from the end of January to mid-May as companies raised prices to compensate for potential duties, according to a Bloomberg Intelligence report. The most-recent deal between the countries expired in October 2015, and Canada was given one year to ship lumber tariff-free while both parties were negotiating a new accord.
“If we have no deal it will be years, years of litigation,” Quebec Premier Philippe Couillard said Monday. “We were ready to defend our workers and the softwood lumber industry before Mr. Trump was elected, and this is what we are doing as we speak.”
Anti-dumping duties on Canadian softwood lumber may reach 10 percent to 15 percent as the U.S. tries to hurt producers financially, RBC’s Quinn said.
That rate would put combined duties in line with the 32 percent duties imposed during a previous softwood trade battle in 2001, CIBC analyst Hamir Patel said in an April 24 report. After a previous trade pact expired, anti-dumping duties reached as high as 12.6 percent from 2001 to 2006, according to the report.
The additional tariff will probably further lift lumber prices as Canadian companies raise quotes to offset the cost, said Kevin Mason, managing director of Vancouver-based ERA Forest Products Research.