What Timber can Tell Us
Of the many Trump-era trade spats, that over timber may have been the most trying and prove to be the most lasting. The renegotiation of the North American Free Trade Agreement into the Canada-US-Mexico Agreement, ratified in 2020, was more of a rebranding than a serious shakeup of trade policy. While the Canadian Dairy cartel’s iron grip on the domestic market eased somewhat, American imports are still restricted to a sliver of the Canadian market. However, timber is proving to be a lasting thorn in the side of US-Canada trade relations.
Softwood, Hardworking
At the core of this flare-up are softwood exports. Timber is generally categorized as either softwood or hardwood. Softwood timber is from coniferous trees, such as pine, fir, and spruce - common to much of Canada’s West, but also the American West and Southeast. This type of timber is used for lumber and plywood, two vital inputs of most housing construction. The billion-dollar construction industry represents a large employer, while housing construction has not kept pace with demand in many markets in the United States and Canada.
The US-Canadian dispute over wood has been longrunning. Since the 1980s, subsequent administrations have haggled over tariff rates on Canadian lumber. American producers argue that the public ownership of much of Canada’s forest allows for tacit subsidies and that exports are effectively dumping. This is especially true of British Columbia, where some 95% of all timber is publicly owned and harvested through forest tenures. This dispute was used by the Trump administration to slap 20% tariffs on Canadian softwood imports, one of the many battles in the supposedly ‘easy to win’ trade wars. The World Trade Organization in 2020 ruled that the US had incorrectly deemed the Canadian practices as ‘dumping,’ and called on the US to lower their trade barriers. This resulted in the Department of Commerce more than halving the tariff rate from 20.2% to ~9%.
Biden’s (Buy) America?
However, the recent boom (or rather not a total collapse) of US housing construction has seen lumber futures soar to over 990USD/1000-boards – a ~40% year-over-year increase. This dramatic increase in prices has benefitted producers, but left the construction industry severely constrained, leading some to call for the Biden administration to further cut tariffs on Canadian lumber.
While there is a procedural element to this dispute, as seen in the US Lumber Coalition’s complaint to the Department of Commerce, the Biden administration could help control housing costs by reducing the tariff rate. It is hard to see how maintaining trade barriers on the exports of a longtime US-ally furthers American interests. This is especially true when these barriers directly resulted in decreased trade between the two countries and increased lumber exports to America’s strategic competitor, China. While President Biden seems to herald a return to earlier multilateral American coalition building, it’s likely that Biden will not be as forceful in pushing for free trade as pre-Trump administrations had been.
This tendency towards trade barriers has demonstrated itself in a variety of Biden’s early policy choices. For one, Biden’s new federal procurement policies roll back exemptions for certain countries like Canada. For another, Biden has maintained – or in some cases, reinstated – Trump’s tariffs. Finally, this trade skepticism has been shown in Biden’s tough talk about the Trans-Pacific Partnership (now CTPP). It’s unlikely that the President will burn his early political capital getting drawn into byzantine trade negotiations which ate up so much of President Obama’s final year in office. However, if President Biden really wants to improve America’s trade position, scrapping the tariffs on Canadian softwood is a good starting point.