Softwood Lumber – Trump admin to further squeeze Canadian manufacturing?
By Peter Ewart
Are the current softwood lumber trade negotiations between Canada and the US just another predictable chapter in the long history of softwood disputes? Or is there more going on here?
Certainly, the election of Donald Trump as US president has added some new features to the dispute in which the US side claims (despite being repeatedly overruled by NAFTA and WTO panels) that Canada is subsidizing its lumber exports.
Paul Quinn, of RBC Capital Markets, early last Summer predicted that, if Hillary Clinton was elected, the Canadian softwood industry could expect to face countervailing duties of about 25%, causing at least 5 BC mills to close and curtailing production at others (1).
However, now that the Trump administration will be taking power instead of Clinton, Quinn has ramped up his prediction to 30 to 40%, duties that would hit the BC and Canadian industry extremely hard and would likely result in more mill closures, job losses and challenges for communities (2).
According to Quinn, Trump will be particularly tough with Canada on the softwood issue so as “to set the tone with other countries” and “position himself well for larger disputes with Mexico and China.” In other words, a punishing Softwood Lumber Agreement imposed on Canada would be a trophy to be flaunted by the incoming Trump administration and its America First policy.
Of course, there is some irony in all of these claims about an “unfair” Canadian advantage in that, currently, the forest industry of the US South has the highest profit margins in North America.
Quinn believes that the dispute is not really about subsidies, but rather the value of US timberlands held by giant forestry companies like Weyerhaeuser who want to ramp us the value of these privately-owned lands by restricting Canadian imports and jacking up log prices (3).
The Wood Markets publication argues that the end game of the US lumber Coalition and US government is to “curtail Canadian sawmills and reduce Canada’s share of U.S. consumption” and to “marginalize” the Canadian forest industry, its largest competitor (4).
How could the US side achieve this? First of all, by demanding a substantially diminished quota on Canadian exports. Secondly, as forestry analysts Harry Nelson and Ngaio Hotte point out, by using legal challenges to block the ability of Canadian federal and provincial governments to make investments “in forest stewardship, competitiveness and innovation” on bogus grounds that this constitutes an unfair subsidy (5).
In other words, right at a time when forest science and technology is on the leading edge of developing and manufacturing a variety of new, innovative products and extracting more value from wood, the US side wants to diminish the Canadian forest industry further, limit its horizons, and strangle its innovation.
According to Nelson and Cotte, even such a program as the BC government’s current Forest Sector Strategy (6) could be a target. As former US senator Rick Santorum revealed recently, the Trump administration plans to aggressively lure away Canadian manufacturing jobs, while reducing Canada to a supplier of raw materials (7).
If a Softwood Lumber Agreement is rammed through that is unfavorable to Canada, who will benefit? As in previous agreements, the most powerful corporations on both sides of the border. In that regard, the US forest companies that own vast timberlands most of all. But in second place will likely be several giant Canadian companies, which by investing heavily in mills in the US South, have now been transformed into North American corporations.
The losers? Small, medium and independent Canadian companies that have substantial trade with the US will be hit the hardest, making them vulnerable to being driven out of business or scooped up by the larger “North American” style corporations operating in Canada. In addition, the US housing, construction and other industries that utilize wood will suffer from jacked up prices putting a damper on economic recovery.
In light of all these developments and possibilities, what might be a road forward for Canada? On softwood lumber, the US has shown itself to be a fickle and unreliable trading partner, and the theory of continental integration nothing but a trap, the end result being Canada reduced to a US warehouse for raw materials. Experience has shown that we cannot base our manufacturing strategy solely on trade with the US or under its thumb.
In the last few years, other forest product markets, especially in Asia, have been further developed which is positive. However, we also need to think in new ways. For example, why not the creation of a forest product marketing board that could negotiate trade and pricing with a variety of countries around the world?
That being said, we not only need diversity of markets, we especially need more diversity of product, i.e. extracting more value from our vast, rich forest resource. Why not establish forest tenure policies that foster such advances? Furthermore, why not hive off a portion of stumpage fees to communities for local economic and infrastructure development?
In other words, we need our own community, province and nation-building project based on natural resource processing and manufacturing. Critical to this is advancing our own scientific, technical and research infrastructure to be a world leader in all facets of forestry and forest product development.
Thus, it is imperative, if and when, a new Softwood Lumber Agreement is signed, that Canada does not agree to any US imposed limitations on Canadian government (both federal and provincial) investment in forest stewardship, science, technology, and innovation or to changes in our system of forest ownership, management and log pricing that hurt us. To do so will be to surrender our sovereignty as a country.
Today, more than ever, we need our own path forward.
Peter Ewart is a columnist and writer based in Prince George, British Columbia. He can be reached at: firstname.lastname@example.org
- Quinn, Paul. “SLA trade file update confirms significant headwinds ahead.” RBC Capital Markets. June 30, 2016.
- Quinn, Paul. “Trump targets softwood lumber.” RBC Capital Markets. November 17, 2016.
- Quinn, Paul. “Softwood lumber negotiations continue.” RBC Capital Markets. October 14, 2016.
- Wood Markets. “Potential import duties in 2017 could marginalize many Canadian sawmills.” September 22, 2016. https://www.woodmarkets.com/potential-import-duties-2017-marginalize-many-canadian-sawmills/
- Nelson, Harry & Ngaio Hotte. “Two ways to settle the latest Canada-U.S. softwood lumber dispute.” Globe & Mail. November 9, 2016.
- BC Government. “Our natural advantage: Forest Sector Strategy for British Columbia.” April 12, 2012. https://www.for.gov.bc.ca/mof/forestsectorstrategy/Forest_Strategy_WEB.PDF
- Ewart, Peter. “Will the Trump administration view Canada as its 21st Century colony?” 250 News. November 21, 2016. https://www.250news.com/2016/11/21/will-the-trump-administration-view-canada-as-its-21st-century-colony/