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2017-04-26 10:43:02
Lumber Tariff Adds Wrinkle to Nafta Talks With Canada

OTTAWA — When previous American presidents have taken trade action against Canadian lumber, it has generally been considered relatively routine. The row between the two countries goes back decades.

But the Trump administration seized on the decision to slap tariffs on the industry’s exports as a way to demonstrate the president’s tough-on-trade posture. By doing so, President Trump sets up potentially thorny negotiations over the North American Free Trade Agreement.

In discussing the tariffs, Commerce Secretary Wilbur L. Ross said Tuesday that Canada was “generally a good neighbor” but that it should play by the rules. “Things like this, I don’t regard as being a good neighbor, dumping lumber,” he told reporters at the White House.

Mr. Ross explicitly linked lumber and Nafta in his comments, along with a dispute over American dairy exports. “If Nafta were functioning properly, you wouldn’t be having these kinds of very prickly, very unfortunate developments back to back,” he said. “So, in that sense, it shows that Nafta has not worked as well as it should.”

As with many of Mr. Trump’s recent moves on trade, it is more useful political theater than aggressive policy action. Tariffs provide a low-stakes way to look tough on trade, without doing much economic damage.

Canadian lumber and dairy are easy trade targets, since they represent longstanding areas of discontent between the two countries. The process to impose tariffs on lumber was actually started before Mr. Trump was elected.

Although the trade dispute is relatively minor in Washington terms, it puts Prime Minister Justin Trudeau in a tough position at home, where it looms large. Even as Canadians have been critical of Mr. Trump’s policies and practices, Mr. Trudeau has courted his counterpart.

Immediately after Mr. Trump was elected president, Mr. Trudeau dispatched his most senior aides to meet with advisers to the new administration. He restructured his cabinet to focus the attention of the top minister on relations with the United States. And although Mr. Trump and Mr. Trudeau are polar opposites ideologically, the prime minister has studiously refrained from directly criticizing the president publicly.

Mr. Trump spoke by telephone with Mr. Trudeau on Tuesday, and a White House statement said they discussed the lumber and dairy disputes but reported no resolution of either. “It was a very amicable call,” the statement said.

Mr. Trudeau was blunter about the dispute, and “refuted the baseless allegations” lodged by the Trump administration and its “decision to impose unfair duties,” his office said in its own statement.

The standoff over lumber goes back decades. Back in the 1980s, Canada’s conservative government, led by Prime Minister Brian Mulroney — who once joined President Ronald Reagan for a duet of “When Irish Eyes Are Smiling” — sold Canadians on the idea of free trade with the United States with the promise that it would end American trade action against softwood lumber. Although that trade agreement failed to achieve that objective, it nevertheless went through, providing the basis of Nafta.

Three decades later, Canada is again faced with a challenge to the industry, an important source of jobs in many rural areas. The United States buys 69 percent of Canada’s lumber exports.

The disputes have always stemmed from a fundamental difference between the two countries. In the United States, most lumber comes from trees on private land. In Canada, governments own most of the forests. In all the disputes, American lumber producers have charged that Canadian provinces subsidize the industry by not charging lumber companies enough for the trees they chop down.

A pattern has emerged in the quarrel over Canadian lumber, now in its fifth round.

The American industry, which filed the initial complaint behind the latest trade move, has always been successful in its requests for tariffs. Canada has, in turn, always succeeded in having those tariffs overturned through Nafta or the World Trade Organization.

But the Canadian lumber industry can’t afford to wait for such rulings. So to minimize the damage in the meantime, Canada has always worked out a deal with Washington. In the past, that has generally involved limiting the amount of Canadian lumber sent to the United States and, at times, export taxes.

While American lumber producers have generally enjoyed bipartisan support, there has always been a loud voice against their trade complaints. American homebuilders have argued that American mills don’t cut enough lumber to meet the country’s needs. Their industry group also contends that the main effect of the tariffs or export restrictions has been to inflate the cost of lumber by about $3,000 on a typical home.

“They want us to buy American, but they need to produce American, too,” said Gerald M. Howard, the president and chief executive of the National Association of Home Builders, who added that even if the American lumber industry ran at full capacity, imported wood would still be needed.

The lumber industry’s performance also complicates the trade picture. Although American lumber companies say they are being harmed by Canadian rivals, the industry performed quite well last year. Even though Canadian lumber faced no restrictions during that period, lumber mills on both sides of the border experienced healthy production increases in 2016, according a survey by Wood Markets, a trade publication based in Vancouver, British Columbia.

The commerce secretary, Mr. Ross, dismissed concerns of home builders that the tariffs would raise the price of new houses, saying the primary cost driver is the expense of land, not lumber.

“This is not like suddenly house prices are going to up 10 or 15 percent,” he said. “That’s silly.”

In the latest dispute, negotiations during the waning days of the Obama administration failed to produce a similar industry agreement to ease off tariffs. Mr. Howard said that the delay in approving the appointment of Robert Lighthizer as United States trade representative had further slowed progress on the issue.

Unless the lumber industry strikes a deal, the Trump administration’s decision will stand. And in June, Canadian lumber industry will face further tariffs in addition to the ones of up to 24 percent announced on Monday.

Mr. Trump’s criticism of Canada’s dairy industry was the reverse of the lumber story, involving American exports being shut out of Canada.

Much to the displeasure of successive American administrations, Canada keeps dairy prices high by effectively inhibiting exports through tariffs of up to 300 percent, limiting the number of dairy farmers and assigning them quotas.

While Canada was allowed to keep that system alive under Nafta, about 75 dairy farmers in Wisconsin found a loophole. For about a decade, they have been shipping industrial milk to Canada processed using a new technology that didn’t exist when the trade deal was signed. Canada closed that door at the beginning of the month.

“It’s definitely having a negative impact,” said Tim Trotter, executive director of the Dairy Business Milk Marketing Cooperative in Green Bay, Wis.

But Mr. Trotter added that his members were not looking for the Trump administration to launch a full-scale assault on Canada’s dairy market. He said that they were merely looking for a way to restart shipments of the specially filtered milk.

For now, it appears that Mr. Trudeau’s government hopes to keep the lumber dispute separate from any Nafta renegotiation. Washington’s position remains unclear and may not even be fully formed. And as it deals with Washington, Canada is also moving to expand its export business to other markets, particularly in Asia.

On Tuesday, Canadian trade officials offered little about how they intend to deal with the Trump White House on the lumber decision. But Mr. Trudeau has called in a wide range of people for advice on dealing with Mr. Trump. Among them is Mr. Mulroney, who owns a home near the president’s Mar-a-Lago resort in Palm Beach, Fla.

While its effect on Mr. Trump remains unknown, Mr. Mulroney has already revisited a moment from the lumber dispute’s past. At a cancer fund-raiser in February, he serenaded Mr. Trump with another performance of “When Irish Eyes Are Smiling.”