Tariffs could make it prohibitively expensive to sell our lumber into the market where almost two-thirds of B.C.’s softwood lumber production is destined, writes Stuart Culbertson. Photo by RICHARD LAM /PNG
Earlier this month, Canadians heaved a collective sigh of relief after Prime Minister Carney’s inaugural meeting with U.S. President Trump featured more bonhomie than bombast. It appeared downright civil at times although no concrete progress was achieved in finding a pathway out of the trade war launched by our largest trading partner. At the end, both leaders seemed to agree that the existing Canada-U.S. Mexico Agreement (CUSMA) could form the basis of a renewed trading relationship with both parties seeking fixes in the current framework.
However, in advance of the pleasantries, Trump reiterated a common but baseless claim that the “U.S. doesn’t need Canada’s cars, energy and lumber.” In fact, he said that the U.S. doesn’t need “anything Canada has other than their friendship.”
Of the three items on Trump’s anti-shopping list, lumber stands out with dubious distinction. For almost four decades, successive U.S. administrations have been on a campaign to shut down access to the U.S. market for Canada’s softwood lumber. Despite the negotiation of a comprehensive free trade agreement with the U.S. in 1987 and its successors NAFTA (with Mexico) and CUSMA (concluded in Trump’s first term), Canada has been unable to secure a fair-trading framework that would protect our softwood lumber exports from egregious U.S. anti-dumping and countervailing duties.
To be clear, these duties are not to be confused with normal tariffs. Nor do they have anything to do with the so-called “reciprocal” tariffs with which the Trump administration is bombarding the foundations of world trade system.
Anti-dumping duties aim to attack Canadian products that are exported at less than the fair market value price available in Canada. Countervailing duties target unfair subsidies that give an exporter advantage over U.S. domestic competitors in their market. In both cases, U.S. domestic producers need to demonstrate injury from alleged unfair trading practices. Both duties are established trade remedies enshrined in global trade rules under the World Trade Organization (WTO).
To date, the U.S. calculation of anti-dumping duties has been a decades-old, fun-with-numbers exercise. U.S. countervailing duties on softwood lumber have consistently targeted B.C.’s timber harvesting fees on crown land (known as stumpage). The U.S. considers stumpage an unfair subsidy when compared with higher equivalent fees charged U.S. producers for access to largely private woodlands in the U.S. Canada has challenged both duties in our free trade arrangements with the U.S. and at the WTO — often successfully but to no avail.
If this happens, B.C.’s softwood lumber exports could face a combined tariff of almost 40 per cent — a five-fold increase over 2022 rates. In short, these tariffs could make it prohibitively expensive to sell our lumber into the market where almost two-thirds of B.C.’s softwood lumber production is destined.
Clearly, putting an end to 40 years of a softwood lumber trade war should be a top priority for Canada in its list of fixes it seeks in any CUSMA renegotiation. In the meantime, the combined impact of these new measures could be devastating for 100,000 direct and indirect jobs in the B.C. lumber industry. With only 15 per cent of our production sold domestically in Canada, finding a replacement market for our U.S. lumber exports will be very challenging indeed.
Nevertheless, a looming trade crisis may present some interesting opportunities in the confluence of at least three policy priorities of the new federal and B.C. governments.
For starters, both governments want to find a way to keep B.C.’s lumber mills open and its workers working. Secondly, both governments seek to help the industry adjust through diversification amid increasingly uncertain access to its major market. Thirdly, both governments want to see more homes built in Canada at lower, more affordable prices.
In the recent election, Carney promised to double the number of homes built in Canada annually to 500,000, entrusting the implementation of this plan to a new Build Canada Homes (BCH) agency that will act as a developer overseeing the construction of affordable housing. Importantly, he committed to use Canadian solutions, such as softwood lumber, modular homes and mass timber, to build a stronger Canada.
Framing lumber constitutes roughly 15 per cent or more of the cost of building new housing. Isolating that cost and reducing it could help make new homes more affordable. An agency like BCH could serve as a broker between B.C. lumber producers and home building contractors who commit to building more affordable homes. Based on meeting agreed criteria, BCH could enter the transaction between lumber suppliers and contractors with a subsidy that would lower the cost of wood in affordable housing projects. It could collaborate with industry and local governments to monitor this arrangement and measure its outcomes to ensure that the affordable housing goal is advanced.
The subsidy at the centre of the plan would need to be carefully designed for compliance with trade rules — if and when that matters again to the U.S. administration.
Hence, B.C. lumber displaced from the U.S. market can be redirected at home to drive down the cost of a significantly increased inventory of new homes throughout Canada.
While much would need to be worked out to develop the best financial model, the essential concept is fairly simple and could result in B.C. mills and workers continuing to produce high-quality softwood lumber products while adjusting to the blows of unfair trade actions south of the border. While the design and extent of any subsidy promises to be controversial, critics of the plan should be compelled to produce an alternative that could advance the policy priorities.
In the meantime, if the Trump administration continues to claim that the U.S. doesn’t need Canadian lumber, it will need a better answer than it has at present on how and where it will access the wood needed to rebuild over 10,000 homes destroyed in last year’s wildfires in Los Angeles.
Stuart Culbertson is a former deputy minister in the B.C. government. He served as B.C. trade representative during the Canada-U.S. Free Trade Agreement negotiations.