The U.S.-Canada dispute over softwood lumber appears to be heading to an escalation. Bloomberg reported that the U.S. Department of Commerce issued new preliminary rulings on antidumping tariffs on Canadian softwood lumber imports that would double the current duties if implemented.
The International Trade Administration calculated a preliminary duty of 18.32%, but the current amount of 8.99% is in effect as there has not been a final determination, a Commerce official said Friday.
The final determinations will not be in place until later in the year. But the report will no doubt catch the attention of many in trade circles, particularly in Canada.
But this is only the latest chapter in what has been a seemingly decades-long battle between the two sides. Both sides have traded trade actions over softwood lumber.
Canada took a complaint to the WTO and in 2019, the world trade body said the U.S. had violated international trade rules in the way it calculated tariffs on Canadian imports of softwood lumber. That resulted in the current duty level of 8.99% which went into place in November, a trim from the level of 20.23% that had been in place.
British Columbia has been the most vocal in the situation. "We find the significant increase in today's preliminary rates troubling," Susan Yurkovich, president of the British Columbia Lumber Trade Council, said in in a statement. "It is particularly egregious given lumber prices are at a record high and demand is skyrocketing in the U.S. as families across the country look to repair, remodel and build new homes."
A big portion of U.S. lumber imports comes from British Columbia.
As for the preliminary increase, the U.S. Lumber Coalition welcomed the development. "A level playing field is a critical element for continued investment and growth for U.S. lumber manufacturing to meet strong building demand to build more American homes," Jason Brochu, co-chair of the coalition, said in a statement.
The National Association of Home Builders has urged the Biden administration to negotiate a new trade deal with Canada to secure supplies and halt further hikes, Bloomberg said.
But the situation is not only a concern in Canada but also in the U.S. as the current duties have pushed up lumber prices at a time when residential construction has been on the rise. Low U.S. interest rates have translated into low mortgage rates. And with a low supply of homes on the market, new construction efforts have been rising. Permits to build new homes have been posting strong increases at an annualized rate each month even as the level of starts is not coming close to the potential level that would be signaled by permits.
That is in no small part as lumber prices have risen dramatically. There has been a roughly 300% increase in lumber prices the past year. In fact, some builders and construction firms are bidding construction or addition jobs on a labor-only basis, saying that the materials cost will be what it costs.
If the higher duties go into effect, that will cause another rise in building costs for renovations, remodelings, additions and new construction. Already, the higher lumber prices are prompting some to hold off on such projects, but the potential increase in tariffs on Canadian lumber could cause some to "bite the bullet" and go ahead with on-hold projects in a bid to get them rolling before even higher costs are seen.
The situation has been interesting on the policy front. U.S. Trade Representative Katherine Tai told lawmakers she was eager to reach a softwood lumber agreement with Canada, being well aware of increased costs seen on the U.S. side of the border. But she also told lawmakers recently that Canada was not interested in any such agreement.
But then after the Free Trade Commission meeting last week between the U.S., Mexico and Canada, Canadian Trade Minister Mary Ng told reporters she wanted to reach an agreement with the U.S. on softwood lumber.
It is not clear why there appears to be a disconnect from the top trade officials in the two countries. But it is a disconnect that so far has not reached the point of the two sides setting time to sit down and discuss the matter in detail.
So we will see. The current tariffs have boosted lumber prices at an inopportune time on this side of the border. It would be an accomplishment by Tai and the Biden administration if they were to put this dispute behind them with some kind of a resolution. But the length of time this dispute has run, positions may not be as easy to change.
But it is a trade matter that agriculture needs to watch closely as it feeds throughout the U.S. economy and an escalation could prove damaging to the U.S.-Canada relationship on several fronts, Washington Insider believes, as history has shown that other sectors outside of those at the heart of a dispute can get snared as collateral damage.