When the U.S. Lumber Coalition petitioned its government November 25 to impose duties on Canadian imports, it kicked off a new round in what has become the longest and most bitter trade war between the two nations.
The argument isn’t new. The American lumber lobby has accused Canadian provinces of subsidizing their forest sectors, an argument it has been making since 1982. But a lot of things have changed since the last lumber war ended in 2006. Some favour Canada; some don’t.
A new president in the White House who campaigned on an anti-trade platform, new markets for Canadian wood products in Asia that reduce dependency on the U.S. and an ownership flip that has seen Canadian forest companies buy a significant number of American mills all bring new wrinkles to the perennial softwood battle.
“It’s a completely different world,” said Keta Kosman, publisher of the Vancouver-based trade journal Madison’s Lumber Reporter.
The U.S. lumber industry, she said, is strongly motivated to see duties imposed that seriously hurt the Canadian industry. At the same time, B.C.’s Big Three forest companies – West Fraser Timber (TSX:WEF), Canfor (TSX:CFP) and Interfor (TSX:IFP) – all own sawmills in the U.S.
Interfor produces more lumber from its U.S. mills now than it does in Canada. The ownership shift reduces the impact duties would have on the big companies. Smaller Canadian companies or companies solely dependent on the U.S. market will feel the pain. Those companies, however, have less political clout.
B.C. accounts for more than half of Canada’s lumber exports to the U.S., and Kosman said B.C. is the voice that Ottawa listens to. The B.C. industry position is that no deal is better than a bad deal.
The election of Donald Trump, however, casts a darker cloud over the dispute. Lumber is a relatively small trade issue for the United States next to the Trans-Pacific Partnership and NAFTA, but Paul Quinn, forest sector analyst for RBC Capital Markets expects Trump to make a larger issue of it to demonstrate his toughness on trade.
“President Trump will be particularly vocal on this issue as it is his first chance to set the tone on U.S. trade with other countries,” Quinn said in a research report after the coalition filed its petition with the U.S. Department of Commerce and the U.S. International Trade Commission on November 25.
Quinn said Trump will likely use the issue as an opportunity “to position himself well for larger disputes with Mexico and China.”
He originally forecast duties in the 25% range. With Trump’s election, he expects them to be closer to 30% or 40%.
The B.C. forest sector has adopted a wait-and-see attitude to the U.S. trade action. It will likely be March or April 2017 before preliminary duties are imposed. In the meantime, talks are continuing between the two countries to reach a negotiated settlement.
While they wait, industry leaders are diversifying their markets away from the U.S. – at the same time the U.S. Lumber Coalition filed its petition in Washington, B.C. CEOs were boarding flights to China and Japan on a trade mission. B.C. Forests Minister Steve Thomson was with them.
“We have really made a big push into the Asian market, so we actually have a more diverse customer base,” Susan Yurkovich, president of the Council of Forest Industries, said shortly before embarking. “About 30% of our products are now moved into the Asian market.”
Kosman said the growth of Asian exports since the last dispute is a huge factor in the ability of B.C. mills to survive a trade war.
“This new trade action is an unfortunate constraint at a time when we don’t need it,” she said, “but we are no longer solely at the mercy of what happens with the United States.”