How a tariff on Canadian lumber could backfire on the U.S.

Politics

JUDY WOODRUFF: But first: As we touched on earlier, there is a trade dispute brewing between the U.S. and its northern neighbor.

William Brangham is back with that story.

WILLIAM BRANGHAM: President Trump's decision to slap tariffs on certain lumber imported from Canada escalated tensions between the two nations.

And the president has already said he wants to renegotiate or overhaul NAFTA this summer.

Today's move drew a pointed response from Canadian Prime Minister Justin Trudeau, who said, "You cannot thicken this border without hurting people on both sides of it."

At a meeting with farmers this afternoon, President Trump came back with some tough words of his own.

PRESIDENT DONALD TRUMP: People don't realize Canada has been very rough on the United States. Everyone thinks of Canada as being wonderful. And so do I. I love Canada. But they have outsmarted our politicians for many years, and you people understand that. So, we did institute a very big tariff.

QUESTION: And do you fear a trade war with Canada?

PRESIDENT DONALD TRUMP: No, not at all.

QUESTION: Why not?

PRESIDENT DONALD TRUMP: They have a tremendous surplus with the United States. Whenever they have a surplus, I have no fear.

WILLIAM BRANGHAM: So, let's get some further explanation about this move, and what it means for the broader trade agenda of the new president.

Greg Ip covers all this for The Wall Street Journal, and he joins me now.

Welcome back to the NewsHour.

GREG IP, The Wall Street Journal: Thank you.

WILLIAM BRANGHAM: So, who would have thought that we'd have our first trade flare-up of the Trump administration with Canada, of all places. Explain, what is this fight all about?

GREG IP: It does sound like a surprise, but it shouldn't be surprising.

And, remember, the Canada-U.S. trade relationship is still the world's largest. And a relationship that size always generates disputes. And this particular dispute didn't fall out of a clear spring sky. It's been going on for literally decades.

It's rooted in the different way Canada and the United States charges forestry companies for the trees that they cut down and turn into lumber. In the United States, they have a market-based system. There is an auction. Companies compete against each other to buy the trees.

In Canada, the provincial government is basically assigned a fee that turns out to be lower than the market price American companies pay. The United States claims that's an unfair subsidy. And so this has been an ongoing source of dispute between the two countries.

The dispute that is under way this week actually began under the prior administration. There had been, if you will, a truce between the two countries. That truce expired.

The Obama administration had been negotiating with the Canadians to come up with a permanent solution. And they failed. And so even though this is being portrayed as the first salvo by Trump's tough trade regime, in fact, it's quite possible that, if Hillary Clinton were president, we would be in the same place.

WILLIAM BRANGHAM: Let's say Trump is successful and he puts this tariff on imported Canadian lumber. As a consumer here in the U.S., would impact would we likely see?

GREG IP: Well, remember, tariffs are in the end taxes. And somebody has to pay that tax.

And in this case, that tax will be paid by the buyers of that lumber, which is the home builders primarily and the people who buy those homes. The National Association of Home Builders estimates that there's about $15,000 worth of lumber in a typical new home, a single-family home in the United States. This tariff will add about $1,200 to the price of that home.

Now, it's been the case that because the market had already anticipated something like this, lumber prices have already started to move up, so you won't necessarily see an immediate impact from this point forward.

But I think one thing people are forgetting is that trade disputes are two-sided. When the United States imposes tariffs on a partner like Canada, there is always a possibility that Canada will say that's not fair and retaliate. And at that point, you have to ask the question, which Canadian industry will suffer because the Canadians have imposed tariffs — excuse me — which U.S. industry will suffer because the Canadians retaliated against it?

WILLIAM BRANGHAM: We're seeing this Trump move on wood. He also had some very strong complaints about Canadian milk. Last week, we saw him making some noises about steel in China. There might be a move on aluminum coming up.

Are we starting to see now a Trump trade policy emerge?

GREG IP: I think we are.

When he was first elected, there was a lot of fear of a trade war. They listened to Trump's rhetoric on the campaign. Oh, we're going to put a 45 percent tariff on China, a 35 percent tariff on Mexico. We haven't seen any of that.

It's clear now that Trump and his administration doesn't want the start a trade war, i.e., big tariff on a whole country that triggers retaliation. What we are seeing is a very careful and meticulous review of all the tools they have available and to use those to start bringing cases against countries under existing law that they think are unfair.

Now, that doesn't look like a trade war, but it could look like a lot of border skirmishes that add up. We still don't know, though, what the end result is. The reason we have things like NAFTA and the World Health Organization is so that, when there is a dispute like this, as there always will be, it's contained, you don't get an escalating tit-for-tat spiral.

And the real test will be, if Canada takes this to a panel with NAFTA or the WTO, and wins, will the Trump administration abide by that ruling?

WILLIAM BRANGHAM: Well, we have seen a lot of instances where the president has talked very tough standing on the sidelines, and then, when push comes to shove and he gets close with foreign leaders, or starts these negotiations, he becomes a little more conciliatory.

Let's say a trade war or a trade fight really does break out. Do you think he will escalate or de-escalate?

GREG IP: At this point, it's impossible to say, and I think it would be unwise for us to speculate too far, because I don't think they really know.

But I think we know this much about Trump so far: He believes he's a deal-maker. He likes to bargain. Part of bargaining is that you talk really tough. You ask for the moon, you settle for the topsoil. He says — he beats up on the Mexicans, he beats up on the Canadians, but the point is not to abrogate the treaty and have the two of us basically putting up walls and blocking trucks at the border.

It's to come up with a deal that both sides feel they can live with. And I think that that's probably where we're going to end up. I think that Trump has people working for him who are ultimately deal-makers. And the Canadians are the same way. They're grownups about this.

That's why you saw the prime minister of Canada not respond to Trump with the same rhetoric, but to talk about the strength of the relationship and the desire for a deal.

WILLIAM BRANGHAM: The president has also said, as we touched on a little bit, that he wants to renegotiate NAFTA. How would that actually look? How could that unfold? What likely might we see?

GREG IP: So, I think one of the interesting things is that this dispute did erupt while that renegotiation is under way.

Wilbur Ross, taking questions from the press today, said he had actually preferred to have kept those things separate, because, as we discussing a minute ago, this softwood lumber dispute is a very old dispute that almost follows a dynamic entirely of its own that is actually somewhat independent of the issues of the issues that are bothering the president on NAFTA.

Unfortunately, because they could not get an agreement within the legislative window, it will end up getting sucked into that agreement. And it's very hard to say exactly how it turns out.

We know from, for example, drafts that the administration has circulated on Capitol Hill, there are a few things they would like to change about NAFTA. They would like to, for example, have the ability to impose tariffs just because imports are surging from Canada or Mexico, not necessarily because they're being sold unfairly.

They want the ability to not have — to be able to — they want more freedom to use our countervailing the subsidy laws against Canada and Mexico. Will the Canadians and Mexicans accept that as a price worth paying to preserve the special agreement? Will they say, no, we'd rather have no agreement? All those things remain to be seen.

WILLIAM BRANGHAM: Greg Ip of The Wall Street Journal, thank you very much.

GREG IP: All right, thank you.

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