Trump slaps a border tax on Canadian lumber, Canada threatens to sue

President Donald Trump announced plans to slap a 20 percent tariff on Canadian lumber entering the United States in a move that seems destined to inflame relations between the two trading partners.

Speaking to a reception for conservative media in D.C., the president repeated his oft-used criticisms of NAFTA, and said that the new tax would apply to softwood lumber coming in from his northern neighbour.

“Canada has treated us very unfairly,” Trump told the reporters, according to Trey Yingst, a reporter for One America News network, which was invited to the dinner.

Commerce Secretary Wilbur Ross told Reuters by telephone on Monday evening that the tariff would vary by company, with an average of about 20 percent. Hiking prices on Canadian lumber could increase costs in America, especially for new home construction.

“It affects $5 billion worth of lumber coming in from Canada. It’s about 31.5 percent of the total U.S. market, so it’s a pretty big deal in terms of the Canadian relationship,” Ross said.

Ross followed up a statement later on Monday night, acknowledging that “it has been a bad week for U.S.-Canada trade relations” and adding that: “This is not our idea of a properly functioning Free Trade Agreement.”

The softwood lumber dispute between the U.S. and Canada is a long-running trade irritation that goes back more than 30 years, with the Americans arguing that the Canadian government essentially subsidizes its lumber, injuring American industry in the process. Ottawa reject that argument.

“The Government of Canada disagrees strongly with the U.S. Department of Commerce’s decision to impose an unfair and punitive duty. The accusations are baseless and unfounded,” reads a statement sent out by Justin Trudeau’s government on Monday night.

“The Government of Canada will vigorously defend the interests of the Canadian softwood lumber industry, including through litigation,” the statement reads, adding: “We have prevailed in the past and we will do so again.”

Ottawa’s position might be undercut by the preliminary results of an investigation, posted online by the Department of Commerce on Tuesday morning, that concluded that several Canadian lumber companies “had massive surges in imports,” which is fodder for an allegation that the Canadian companies were dumping large quantities of lumber in the Canadian market. A final determination, though, has yet to be made.

The announcement comes amid a provincial election in British Columbia, which is home to much of Canada’s forestry sector. Incumbent Premier Christy Clark slammed “lumber barons” in a campaign speech earlier on Monday.

“They want to raise the price of lumber because they want to make more money. It’s that top 1 percent in the United States that wants to line their pockets at the expense of the middle class,” Clark said at an event.

This is the second time the Trump administration has targeted the Canadian government in recent weeks, with the president slamming the dairy industry north of the border for supposedly being to blame for job losses at home.

In January, the U.S. trade commission found that the U.S. forestry sector was injured by Canadian softwood lumber imports. The 20 percent tariff is designed to offset those losses.

Meanwhile, the American International Trade Administration has been pursuing an anti-dumping investigation against Canada, but has yet to reach a determination — it is expected to reach a decision by June 23 of this year, according to a notice from the trade administration. That could result in additional tariffs, on top of the 20 percent.

Washington has long contended that the Canadian lumber industry, which is partially run by government-owned corporations and largely done on government-owned land, is subsidized. Canada has rejected those characterizations, and argues that U.S. producers are simply unable to compete. The arguments have played out in international trade tribunals, with each side trading victories. The most recent agreement, signed in 2006, expired in 2015.

Both sides of the border had been optimistic that President Barack Obama would have been able to strike an agreement on lumber in the last months of his presidency, but a deal failed to materialize.