In the wasteland of Washington’s political swamp, April may not be the cruellest month, but it is turning out to be the craziest, especially for Canada, as President Donald Trump desperately hunts for some cheap political wins. In trying to validate his shambolic first 100 days in office, a time when palace intrigue has overshadowed his anemic policy accomplishments, Trump first decided that rounding on Canadian dairy farmers is easy fodder. Now he’s gone further. Late Monday night, the U.S. Department of Commerce hit Canada with tariffs or “countervailing duties” of up to 24 per cent on some softwood lumber. The Canadian response was immediate. “The Government of Canada disagrees strongly with the U.S. Department of Commerce’s decision to impose an unfair and punitive duty,” Ministers Jim Carr and Chrystia Freeland said. “The accusations are baseless and unfounded.”
If it wasn’t clear already, this is a huge deal, especially in B.C., where an election is in full tilt. But Trump’s not done yet. Coming soon, according to U.S. government sources: wine sales in B.C. are in Trump’s sights. Crazy April is about to get even crazier.
Like the spring rains, Trump has showered people with distractions in the hopes that they might wash away the stain of his ugly poll numbers. There was a flash flood of bizarre presidential tweets this week about how Trump won the popular vote—he didn’t. He attacked the “fake news” again—yawn—and then he gave a fact-free, stream of consciousness interview to the Associated Press, where he claimed, among many things, that he had never heard of WikiLeaks before the election—he’d talked about them years ago, as CNN pointed out—or that he never had a first 100 days agenda. Of course he had one, and has repeatedly talked about it. By the way, a shout out to the Toronto Star’s Daniel Dale, who might be compared to an elf in Santa’s workshop working to call out Trump falsehoods, only Dale is an elf working on a calendar where every day is Christmas. In any case, the colossal failure to pass a healthcare act revealed Trump’s inability to work with Republicans in Congress, which is why his plan to pass the biggest tax cut in history—typical Mar-a-Lago bloviating—will likely define his legislative credibility. Amidst all this chaos, Trump has decided Canada might be easy pickings.
Because of Trump’s penchant for echoing the last thing said to him, it was not totally surprising that he would visit Wisconsin and repeat what a few dairy farmers there spun him about Canada’s policy on ultrafiltered milk, calling it “unfair” and a “disgrace.” Trump reiterated the bluster later at the White House, then lumping in Canada’s policies on softwood lumber and energy. All this despite the fact—a word with which Trump is only passingly familiar—that he was wrong on almost every count. Canada’s current Ambassador to the U.S., David MacNaughton, quickly pointed all this out in a stern and proper letter, rightly stating that dairy trade between the two countries favours the U.S. by five to one. The problem is more overproduction than Canada’s protectionist supply management system, which has its own fundamental problem that I will mercifully not get into here. It doesn’t matter, though. Trump knows that stumping for dairy farmers wins him support in Wisconsin, the home of a Republican senator and House Speaker Paul Ryan, and in New York, home to Democratic powerhouse Sen. Chuck Schumer. Trump needs their support for his upcoming tax cut legislation so this is all just raw, unpasteurized politics. It is not much different for softwood lumber.
It’s stylish to dismiss Trump’s outrageous statements about Canada as just another fact-free “outburst,” as the former Canadian ambassador to the U.S., Derek Burney, recently described it to me. And he’s not wrong. Trump uses his rhetoric to cajole and shake down his negotiation opponents before anyone gets to the table. The U.S. doesn’t even have its trade team in place, nor have they given the 90 days notice to open NAFTA talks, but Trump is already trying to soften up the Canadian opposition. That’s why Burney and his old friend Brian Mulroney have been giving the Liberal government key advice: keep calm. Don’t respond. Don’t react to Trump’s eruptions. One senior PMO source said to me, “This is textbook negotiating style. They try to rattle cages and get people to freak. We don’t do freak.” The plan: Let Trump bluster away and wait until everyone actually gets to the table before things get real.
That doesn’t mean Trump’s words are not hazardous or that the softwood lumber tariffs aren’t painful. “I agree that there are elements of theatre with Trump,” says Richard Fadden, the former head of Canada’s spy agency, CSIS, and the former national security advisor. “But I think there is a real danger nevertheless. Bureaucracies everywhere are notoriously responsive to their most senior chief. So, even if some of the secretaries are reasonable, signals from the top guy will resonate at many levels. We have a clear example of this already—despite the courts and the Homeland Security secretary, who is pretty reasonable, think how the U.S. Immigration and Customs Enforcement is treating non-citizens in the U.S. He is the president to whom most U.S. civil servants will show considerable deference.” The same can be said for business leaders, who also take their cues from the president. Trump has created a chill and instability for the cross border business community. The concerns about the future of trade and the imposition of a Border Adjustment Tax are real. In other words, there will be crying over spilled milk.
But if the dairy issue doesn’t catch your interest, the softwood lumber issue should. Again. Now, let me just admit that if the phrase “softwood lumber dispute” has a soporific effect on you, you are not alone.
But the issue has real consequences for thousands of jobs in this country, and on the price of homes in the U.S. The imposition of the countervailing duties on Canadian softwood lumber was accepted by the Canadian government with sanguine coolness, but only because we’ve all seen this movie before. “This decision will negatively affect workers on both sides of the border, and will ultimately increase costs for American families who want to build or renovate homes,” Ministers Carr and Freeland wrote. “The U.S. National Association of Home Builders has calculated that a $1,000 increase in the cost of a new house would put home ownership beyond the reach of more than 150,000 American families, and jeopardize thousands of jobs in the American home construction industry. The Government of Canada will vigorously defend the interests of the Canadian softwood lumber industry, including through litigation.”
They have it right. For decades, the U.S. has argued that Canada unfairly subsidizes its lumber industry because our timber is cut from Crown Land. These new duties will indeed make the prices of a new U.S. home go up, but that appears to be lost somewhere in the lumber lobby swamp of Washington. The consumer, often a Trump voter, will likely be getting the shaft. A U.S. government official explained to me that the anti-dumping tariff and countervailing duties on Canadian lumber stem from a Jan. 6, 2017 determination from the United States International Trade Commission, which found “a reasonable indication that a U.S. industry is materially injured by reason of imports of softwood lumber products from Canada that are allegedly subsidized and sold in the United States at less than fair value.” So here are the penalties.
What happens now? The plot of this drama is like an episode of Wile E. Coyote and the Road Runner, where the U.S. keeps trying to defeat us on softwood lumber with some kooky scheme and we end up zipping on by. Instead of a stick of dynamite, though, the wily old U.S.A. heads to the WTO or the NAFTA dispute resolution panels where, almost inevitably, they lose. Canada knows this, as does the U.S. So here’s the twist.
With no current softwood lumber agreement, the U.S. has not only launched these duties; more ominously, they are threatening to change the whole game. Wilbur Ross, the new Commerce Secretary, is no dummy. He would like to rope softwood inside the broader NAFTA deal and in the process dump the pesky impartial panels that keep ruling in Canada’s favour. If you don’t like the refs, why not just get rid of them altogether? (That would be Chapter 19 of NAFTA, which outlines the dispute settlement rules.) This is the real deal-breaker for any future trade agreement and should snap you awake if you ever find yourself dozing off during a softwood lumber debate. Don’t miss the deal because of the forest. This isn’t just about the wood at all. It is about the entire trading relationship.
But it won’t end with softwood lumber and dairy. Next up in Crazy April: wine. The U.S. has already announced it will go to the WTO for the 26th time with a complaint over B.C.’s policy of selling B.C. wine in grocery stores, which the U.S. says “discriminates against the sale of U.S. wine.” B.C. does allow U.S. wine to be sold under the “store within a store” option, but no grocery chain will go to the trouble or expense to do it. The situation also applies in other provinces like Ontario. Don’t be surprised when Trump soon starts talking about Canada’s “disgraceful” wine policy. It is all about America First.
Crazy political April is coming to a close. The trade war seeds are planted. May will keep the crazy blooming.
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