As president-elect Donald Trump begins to shape his trade agenda, there are concerns about the effect on the Canadian economy, in particular because of our reliance on trade with the United States. However, there may be opportunities, too, and Canada must take full advantage where it can. This is particularly true when it comes to the softwood lumber dispute.
Mr. Trump has billed himself as the president of the everyday man. Perhaps more so than any other president in modern history, he will come to office less beholden to special interest groups. It would be a mistake to assume he will automatically be in the camp of the U.S. Lumber Coalition, the powerful lobby group behind the latest push for duties on Canadian softwood.
If the softwood lumber dispute continues down the path it is headed, tariffs – high ones – will be imposed on U.S. imports of Canadian lumber. Mr. Trump’s power base of voters includes those who will be most negatively affected by this action: The higher cost of lumber that tariffs would bring about would not only increase housing prices, but also lead to lost jobs and wages.
While much of the Canadian attention to the U.S. election focused on how both presidential candidates took a protectionist stance against global trade, much of Mr. Trump’s campaign boiled down to keeping jobs in the U.S. Or, keeping money in the pockets of Americans who have been struggling to get ahead.
There is only one real reason behind the U.S. Lumber Coalition’s move to petition the Commerce Department to place duties on Canadian softwood lumber – to raise the price of lumber. Yet, while the U.S. domestic industry benefits from higher profits, U.S. consumers lose out. This is clear by looking at the effects of the duties prescribed by the recently expired Softwood Lumber Agreement. Ranging from 0 per cent to 15 per cent, depending on the price of lumber, U.S. producers earned more than $4-billion because of the duties, according to the Montreal Economic Institute; meanwhile, U.S. consumers paid an extra $6-billion. It is widely reported that if duties are imposed on Canadian lumber in 2017, they will be in the 25-per-cent range.
However, the U.S. National Association of Home Builders recently forecast that imposing a 25-per-cent duty on Canadian softwood lumber imports will result in nearly 8,000 lost jobs in the United States. This translates into $450-million (U.S.) in lost wages. This scenario is the opposite of what many Trump supporters voted for.
Higher lumber and therefore housing prices will be a triple negative: home ownership will be less attainable for many Americans; jobs will be lost in the construction and related sectors; and it will make it that much harder for Mr. Trump to fulfill his promise to increase GDP growth to 4 per cent.
The housing market plays a major role in U.S. economic health. After the Great Recession of 2008, the U.S. economy only began to recover when the housing market did, and Canadian lumber aided this recovery. U.S. softwood lumber demand exceeds its domestic supply, and nearly all the softwood lumber the U.S. imports (95 per cent) comes from Canada. Imposing duties high enough to significantly restrict the export of Canadian lumber to the United States will raise prices, decrease consumption and slow growth. A cooling housing market will make it difficult to boost growth in the economy as a whole. Particularly given his building and real estate background, Mr. Trump should know this better than most.
Getting a new softwood deal must be near the top of Canada’s list of issues to raise with the new administration. We must approach the softwood file in a way that will resonate with the incoming president and his team. And, because in every negotiation there is give and take, we must consider the list of issues the Trump administration will bring to the table, and what we are willing to give up to get a deal on softwood.
Mr. Trump comes to office unencumbered by the lobbyist establishment that has swayed the debate so far. Canada needs to tell the story of how our softwood contributes to U.S. economic growth, and how restricting its import will hurt most the very people who voted him into office. What is certain is that with Mr. Trump, things will not be business as usual. In an environment of uncertainty, this is a Canadian opportunity.