The issue of softwood lumber has been a long-standing problem of trade between the US and Canada since 1982. There have been numerous legal battles over the trade which have caused some degree of tension between the two countries. But as I will show, the U.S. outrage at softwood lumber prices is nothing short of hypocritical.
There has always been the allegation by the U.S. that Canadian lumber is artificially made cheaper, cutting the competitiveness of the American supply. Their claim is that, since trees are owned by provincial governments, the price is artificially low. Stumpage fees are set by legislation, not by a competitive market as it is in the US. Thus, in their view, the Canadian lumber industry is unfairly subsidised hurting American competitors. Standing US policy is to place countervailing duty tariffs to offset the subsidy to bring the price of the commodity back up to market rates.
The Canadian government disputes this allegation that they artificially make the price of lumber low so as to undercut US suppliers. The price is designed to supply lumber to many industries, not specifically export. This lack of specificity makes it ineligible to be labelled a subsidy under U.S. law. Under U.S. trade remedy law, a subsidy must be specific to a particular industry. “This requirement precludes imposition of countervailing duties on government programs, such as roads, that are meant to benefit a broad array of interests.”
The U.S. repeatedly took this issue to various courts only to have their claims struck down. Eventually, the U.S. decided to continue to place tariffs regardless of it violating the NAFTA agreement.
Eventually, an agreement was reached between the two countries in April 2006, the Softwood Lumber Agreement. The agreement would last seven to nine years, and a two-year extension was signed in 2012. The agreement was to lift the anti-dumping duties as long as the price of the lumber continued to stay above a certain range. If it fell below that level a mixed export tax and quota regime would be implemented on imports of Canadian lumber.
Currently, there is a need for a new agreement between the two countries which has become a matter of contention for Donald Trump, who has referred to it as, “the worst deal ever.” However, his position is entirely hypocritical given the US history with regards to commodity dumping of their own.
Specifically, I am referring to the dumping of cheap corn products into Mexico. When the NAFTA agreement was signed, heavily subsidised US corn products were dumped into Mexico causing the utter destruction of the domestic corn production. The U.S. corn was so cheap that farmers in Mexico could not compete. This impoverished tens of millions of Mexicans forcing them off their land. These people were forced into the cities to find work in the maquiladora sector of the economy. Essentially, US sweatshops which popped up also as a result of NAFTA. The corn subsidies massively increased the poverty rate in Mexico. (It is worth noting that this is what sparked to the Zapatista uprising.)
The U.S. is no stranger to dumping cheap commodities into countries. As with the case of Mexico, it caused unbelievable harm. Yet, if we were to believe Trump, we’d think that some slightly cheaper lumber was the worst thing that ever happened. The hypocrisy and self-pity in this situation are unbelievable. The free market and NAFTA are only good and fair when the U.S. benefits from it.