How to solve the unsolvable softwood lumber dispute

The U.S. and Canada are waging another round of their trade dispute over softwood lumber. They need to strike a deal before the six-year review of the U.S.-Mexico-Canada Agreement.

For 40 years, the U.S. has argued that Canadian softwood is dumped (or sold below “normal value”) and subsidized, and hit these imports with antidumping and countervailing duties, respectively. Canada has typically responded by negotiating for a brief respite, in the form of “managed trade.”

The current round of the dispute is called Softwood Lumber V, and it’s about to collide with a review required under USMCA’s “sunset clause.” Canada has filed against newly adjusted antidumping duties at the U.S. Court of International Trade and challenged countervailing duties at USMCA. These rulings will cast a shadow on USMCA’s review, especially if President Donald Trump wins back the White House.

Softwood got considerable attention in the negotiations over USMCA. Trump offered it as evidence when he said that “[p]eople don’t realize Canada’s been very rough on the United States.”

Trump ratcheted up the tariffs on softwood and threatened to walk away from USMCA if Canada didn’t acquiesce. Canada vowed to retaliate, won a ruling at the World Trade Organization and was delighted when the Commerce Department downward revised both the antidumping and countervailing duties. In January 2022, Canadian exporters were looking at a combined tariff bill that ranged from 6.75 percent to 20.24 percent.

If Trump prevails in November, he’ll get another kick at the can when USMCA is reviewed in 2026. Interestingly, Trump had wanted a five-year sunset clause so he’d have more opportunities to demand concessions from Canada (and Mexico), lest he walk away from the deal. That’s exactly what he’ll get if, in two years, the U.S. fails to agree to extend USMCA: more opportunities through annual reviews.

Annual reviews are the last thing Canada wants right now. Ottawa is already worried about trade policy under Trump 2.0. Foreign Affairs Minister Melanie Joly insists that Canada is working on a “game plan” to defend against American unilateralism. Yearly tinkering with USMCA would be a disaster in this regard.

Canadian softwood exporters currently pay a combined tariff bill ranging between 6.61 percent and 9.25 percent. They can expect to do worse if the dispute remains in the limelight in 2026.

The 2006 Softwood Lumber Agreement offers a template. Using a combination of export charges and quotas, the agreement stabilized the market for nearly a decade. Managed trade is never pretty, but given the salience of the softwood dispute, it will look better before, rather than after, USMCA’s review.

U.S. end-users of softwood also want a deal. For example, the National Association of Home Builders points out that American suppliers of softwood can’t satisfy domestic demand, and wants an agreement with Canada to rein in the cost of building homes. The National Lumber and Building Materials Dealers Association wants a deal that “eliminates tariffs and brings stability to the supply and pricing of softwood lumber.” Even the U.S. Lumber Coalition, which represents import-competing interests, has come out in favor of a “new U.S.-Canada softwood lumber trade agreement.”

Annual reviews, moreover, would be bad for the U.S. economy writ large. Uncertainty isn’t good for trade and investment, and there would be a lot of uncertainty, not least because it’s unclear what Congress’s role is in reviewing USMCA. The implementing legislation says the president will consult with the “appropriate congressional committees,” but that’s it. If Congress is to reassert its tariff authority, this is a problem.

The ultimate irony will be if USMCA’s unhelpful sunset clause proves helpful in solving the unsolvable softwood lumber dispute.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, and a Global Fellow at the Wilson Center’s Wahba Institute for Strategic Competition. Follow him on X @marclbusch.