Tariff – BIG

On August 4, the U.S. Department of Commerce announced that it would be cutting the tariff on most Canadian softwood lumber imports from 17.91 per cent to 8.59 per cent. The new rate is expected to take effect later this month.

This is just one act in a long-time lumber dispute that’s been ongoing between the two countries since the late 1800s. The Trump administration introduced the most recent tariff in 2017, claiming that the Canadian government subsidized its forest industry, allowing Canadian lumber companies to flood the U.S. market with cheaper wood and outprice U.S. competitors.

Most Canadian logging forests exist on Crown land and forestry companies are required to pay a “stumpage fee” to provincial governments for the right to log. In the U.S., however, logging forests are largely owned by lumber companies. In the past, U.S. lumber companies have complained that Canada’s provincial governments charge low stumpage fees for cutting trees, allowing Canadian lumber companies to produce cheaper wood.

By lowering the lumber tariff to 8.59 per cent, the current U.S. government is making it cheaper for Canadian companies to export lumber. In turn, this should lower prices, making it more affordable for U.S. home and cottage owners in need of building materials.

The National Association of Home Builders (NAHB), a U.S. organization that advocates for more housing opportunities, estimates that since spring 2020, extreme price swings in lumber, in part due to tariffs, have added an average of $14,300 (USD) to the price of a new home.

But despite the lumber tariff being cut in half, the Canadian government is still unhappy with the trade agreement. “Canada is disappointed that the United States continues to impose unwarranted and unfair duties on Canadian softwood lumber. While the duty rates will decrease from the current levels for the majority of exporters, the only truly fair outcome would be for the United States to cease applying baseless duties to Canadian softwood lumber,” said Mary Ng, Canada’s Minister of International Trade, Export Promotion, Small Business, and Economic Development, in a statement.

Canada intends to challenge the tariff by launching a dispute settlement process under Chapter 10 of the Canada-United States-Mexico Agreement (CUSMA).

Even if Canada is able to convince the U.S. to drop the tariff, constraints on lumber supply could cause prices to remain high. “While [Canadian] producers might like to produce more lumber for the market, the reality is we’re probably going to continue shutting more sawmills down in the next five to 10 years because we just simply don’t have enough supply of logs to feed those mills,” said Gary Bull, a forest resources management professor at the University of British Columbia.

For over a decade now, Canada’s logging forests have been contending with what experts call natural disturbance. These are large-scale events, such as forest fires and invasive insects, that destroy trees. “We’ve had over 30 million acres of trees eaten alive by insects,” Bull said.

As a result of the destroyed trees, logging companies are grappling with what’s called the mid-term timber supply problem. “We’ve planted billions of trees, but when that happens, we have to wait for these things to grow for three or four decades before we can make sawn timber again,” Bull said.

Compared to tariffs, lack of supply has a much greater impact on the amount of lumber making it into the U.S. market, Bull said.

It also impacts Canadian consumers. Low supply keeps lumber prices high, making it more expensive for cottagers looking to renovate or build. In the past, when supply was low, the Canadian government would import lumber from Russia, but considering recent global events, that seems unlikely, Bull said.

“When I’m thinking about cottagers and building, my view is that lumber prices are not going to go down ever to the price levels that they were,” Bull said. “Therefore, if you’re going to build, build well, and build to last.”