Shedding Light on the Canadian-Softwood Tariff

Shedding Light on the Canadian-Softwood Tariff

Chantiers Chibougamau sawmill. Photo: Naomi Heindel

Lumber was in the news this week as the Trump administration announced that we’re going to levy a tariff on Canadian softwood. No doubt you heard the news and wondered...well, we’re not exactly sure what you wondered. So we took a scattershot approach and tried to cover all the bases. Special thanks to forest industry analyst Lloyd Irland for compiling many of the links you’ll find below.

What’s a tariff? It’s a tax; a toll, levy, duty. In this case, the United States has announced it will impose a preliminary anti-subsidy duty on Canadian softwood lumber imports. The tax varies from exporter to exporter, but averages about 20 percent.

What’s “anti-subsidy?” Sorry – the whole issue is one wonky term after another. Here’s a clip from the U.S. Commerce website explaining the distinction: Foreign governments subsidize industries when they provide financial assistance to benefit the production, manufacture, or exportation of goods. Subsidies can take many forms, such as direct cash payments, credits against taxes, and loans at terms that do not reflect market conditions.

So the Canadian government is subsidizing Canadian softwood? That’s what our lumber producers claim, and what the U.S. Commerce Department determined through its “countervailing duty investigation.” Since 90 percent of the timber in Canada is owned by the Government, you can see how they’re in a position of inordinate influence. If you want more U.S. lumberman take, check out this website.

Who exactly do you mean when you say “our lumber producers?” U.S. Lumber Coalition, Inc. (DC); Collum’s Lumber Products, L.L.C. (SC); Hankins, Inc. (MS); Potlatch Corporation (WA); Rex Lumber Company (FL); Seneca Sawmill Company (OR); Sierra Pacific Industries (CA); Stimson Lumber Company (OR); Swanson Group (OR); Weyerhaeuser Company (WA); Carpenters Industrial Council (OR); Giustina Land and Timber Company (OR); and Sullivan Forestry Consultants, Inc. (GA). These were the companies that petitioned for this.

Why are all the names from the South and West and not the Northeast? Because that’s where the bulk of U.S. softwood sawmills are. Many of our spruce/fir logs are shipped into Canada for processing – writer Joe Rankin used the lyrical description of Quebec mills “draped like Christmas lights all along the province’s southern border” in this story he wrote for us. Maine does have some large softwood sawmills, and some have gone on record as vocal supporters of the move, but to complicate things, others are owned by Canadian companies, which muddies the water a bit. J.D. Irving is one of the Canadian companies named in the suit; they’re also the largest timberland owner in Maine.

But if we export our logs to Canadian mills, and Canadian mills are hurt by this tariff, won’t that hurt people who sell logs? Possibly, yes. The hope is that in the negotiation the border mills get an exemption, and you can be sure our congressional delegation is lobbying for this. “If there’s no exemption,” said Richard Carbonetti, a forester and vice-president of LandVest, Inc, “it’s not going to be pretty.” Carbonetti said that loggers, landowners, foresters have seen the price of softwood drop in the past year from the $70-$80/ton range to the low $50/ton due to a housing market that’s still struggling, and if the tariff gets placed on these mills, it will translate into even lower prices. Another thing to consider is that Quebec lumber trucks are an important part of the backhaul system that allows for more cost-effective trucking of logs; the loss of backhaul options could reduce the value of hardwood logs as well. “This complex international trade issue will have real financial impacts on the forestland owners of the Northeast,” said Carbonetti. [Full disclosure Carbonetti sits on the Northern Woodlands’ board of directors]

So probably home builders aren’t too thrilled, either. Correct. The National Association of Home Builders issued a press release suggesting that it takes about 15,000 board feet to build a typical single-family home, and that the lumber price increase we’ve seen in the first quarter of this year – a spike reflecting the uncertainty surrounding this issue – has meant $3,600 in additional costs.  

But U.S. mills are happy, right? Jeff Easterling, President of the Northeastern Lumber Manufacturers Association, says this is “a good thing for the industry in the Northeast.” He added that the mills in Maine definitely have the capacity to capture more market share. The Portland Press Herald reported an enthusiastic response from some of Maine’s sawmill owners, including a quote from a spokesperson for Pleasant River Lumber saying  the company was going to add jobs because of this measure. Wall Street also thinks it’s good: a stock analysis by a major bank that was circulated weeks before the announcement suggested that the lumber market was already pricing-in potential duties of around 20-30 percent and their sense was that there was “more room for prices to run.” Their guess was that a tariff between 20-30 percent would make Canada significantly less competitive in the U.S. market, and that imports would pull back sharply. According to the briefing, every two percentage points of market share that Canada cedes would be worth 1 billion board feet of market potential for U.S. producers.

How much softwood do we buy from Canada? Exports of softwood to the U.S. from Canada were valued at $5.7 billion in 2016, and account for over 75 percent of all of Canada’s softwood lumber exports by volume. One out of every three houses in the U.S. is built with lumber from Canada.

Has anything like this happened before? Oh god yes. This softwood trade war started in 1930, and this particular flare-up is really an extension of a battle that started in 1982. Check out this great timeline that explains every skirmish.

What’s the Canadian side of the story? Here’s an official government take from British Columbia.

And here’s a pulls-no-punches take that ran in Forbes magazine.

Where do we stand in the whole process? The next step will be negotiation – lots of talk, lots of lawyers. As Lloyd Irland puts it: “This all entails mind-numbing mumbo-jumbo trade economics, and complexities of U.S. trade law as well as international agreements and GATT rules . . . A clue: the U.S. Lumber Coalition’s complete filings to the Commerce Departments total 15,000 pages. The Coalition’s three petition briefs (Nov 25, 2016) that are publicly available total almost 500 pages.” Suffice it to say we’ll be talking about this for years.

I don’t work at a lumber mill, sell logs, or plan on building a house anytime soon. Does it affect me somehow anyway? These things always do, right? As of me writing this on April 26, the U.S. dollar had appreciated 1.7 percent against the loonie because of this – settling at $1.36 to $1.00. Time to take your girl out on the town in Montreal, if you’re not feeling too poor on account of your bulk maple syrup taking a hit in value, or too depressed, if you’re a Toronto Blue Jays fan, that it’ll be that much harder to re-sign Josh Donaldson.

More seriously, it will certainly affect things in myriad ways, many subtle. If the Canadian border mills aren’t exempted, it could make it that much harder to sell U.S. logs, which could make it that much more likely that forest parcels get converted to non-forest uses. There’s talk, though it may just be rumors, of Canada retaliating against U.S. dairy farmers (who they accuse of receiving government subsidy), which could affect that side of the working landscape. On the positive side, it does seem to be already spurring some domestic growth in wood processing in Maine. One benefit of higher lumber prices could be that it brings some of the little country sawmills back to offer rural folks a more modestly priced alternative.

What’s the non-business angle to this story? This whole thing is being cast as a sporting event – our sawmills versus their sawmills – but pan out to see the big picture and it gets harder to distinguish an us and a them. This is true in a free-trade sense – their mills are buying our wood, our builders are using their boards, framing lumber is framing lumber; there’s a symbiosis to global business that a nationalist view misses. But it’s also true in an environmental sense. Canada is geographically huge, and yet its total population is 4 million less than the population of the state of California and (speaking loosely) the people all live clustered around the U.S. border or the coast. The “unsettled” land contains 25 percent of the world’s natural forest, so it’s an enormous resource that the government is intent on monetizing. And man do they cut it. Go to Google Earth and type in Lac Mistassini, Quebec, Canada, then scroll to the east. It looks like the Midwest, only instead of crop fields it’s clearcuts. Read this story Naomi Heindel wrote for us on the management in the James Bay region and the effect on the indigenous Cree who live there.

Talk to conservationists who worry about the plight of the woodland caribou whose range is being fragmented by the aggressive harvesting.

The non-business story here is one of global resource management, and here, too, them is us. If we’re taking 75 percent of their exports and we outnumber them by 800 percent, they’re really cutting their wood for you and me. Cheap Canadian softwood has allowed us to live in cheap-to-build houses; it’s allowed us an endless supply of quilted toilet paper.

There’s a lot more to say along these lines.

 
Discussion
  1. Al Robertson → in Sheffield, VT
    May 01, 2017

    Great Article!

  2. Calvin Hafford → in Masardis/Allagash
    May 03, 2017

    Not only does the Canadian Government help the Canadian mills. The State of Maine through the Tree Growth Tax, reduces the property tax on Irving woodlands by about 50 per cent which allows them to grow cheaper trees for their mills in Canada. Remove the tax reduction for trees shipped to Canada and put the border tax on for finished lumber coming into Maine and you will see more saw mills located in Maine.

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