Trump and the weak loonie make bad moment for end of softwood deal: Don Pittis

It's hard to think of a worse time for Canada to reopen softwood lumber talks with the U.S. Trump has made it popular to think the U.S. is losing out on trade, and in this case, a low loonie is a liability.

Low loonie advantage and trash talk on trade will make striking a new deal even harder

About a third of the lumber used to build U.S. homes comes from Canada, and with the falling Canadian dollar U.S. producers have become protectionist. (Reuters)

Even if Donald Trump's chances for taking over the White House end on election day, his questionable comments about trade will go on to haunt us for years.

One of those unforgettable declarations is that the U.S. is losing out on trade, something that will make hammering out a new Canada-U.S. softwood agreement even harder than usual.

For those of us who have been covering Canadian trade policy for at least three decades, the revival of the softwood debate is like the return of an almost forgotten nightmare.

Trade trash talk

The current impasse over softwood lumber only serves to disprove Trump's statements that the North American Free-Trade Agreement (NAFTA) is bad for America and American jobs.

According to the broad principles of free trade, the dispute should never have arisen, either now or 30 years ago.
Trump, who has spoken strongly against North Amercian free trade getting the endorsement of the U.S. National Border Patrol Council during a campaign event. (Reuters)

The U.S. and Canada are completely different regimes for the production of pine, spruce and fir boards — used mostly for the construction of homes. As with our many other commodities, such as oil and fertilizer and aluminum, the U.S. benefits enormously when Canada exports the product of its forests to the U.S.

In return, we buy many products of the U.S. industrial and agricultural economy.

Every once in a while, a powerful U.S. softwood lobby gathers up money and lawyers in what is effectively a protectionist move to limit the import of Canadian product that competes more or less directly with the wood they cut and saw south of the border.

And generally after a protracted negotiation that involves governments and producers on each side of the border — with added interference from U.S. industrial consumers, who want wood to be as cheap as possible — cross-border trade continues pretty much as before. 

For the past 10 years there has been relative softwood peace. 

After a grace period, that 10-year deal comes to an end finally and irredeemably tonight at midnight, and according to the bureaucratic rules enshrined in the NAFTA deal that Trump loves to hate, simply registering an American legal challenge throws up a giant trade barrier that hurts Canadian exporters.

Too much detail

More than 30 years ago, when I covered this unpleasant issue in far too much detail, the main U.S. complaint against Canada was something called "stumpage." It is an ugly word seldom used in polite conversation. 

Effectively, stumpage means the amount lumber producers pay for the standing trees that they chop down to make lumber. 

In the early days of the softwood wars, the difference between stumpage in Canada and the U.S. was dramatic, but for a good reason.

No one wanted to go to places in northern Canada to chop down skinny trees. The companies had to build roads and new lumber mills and ship their product many kilometres to markets.
After two years of delays, J.D. Irving Ltd. has decided to go ahead with the replacement of its Doaktown sawmill in 2017. (The Canadian Press)

So to attract the economic activity and jobs created by the lumber companies willing to do that work, the governments that owned the forests offered cheap deals on stumpage. That, too, is the market at work.

In the U.S., where they used up what they had believed to be their endless wild forests, there were no northern resources to milk for jobs. There, much of the land is privately owned and highly productive. As in Europe, forests there have been repeatedly grown and cropped, and lumber producers bid against each other for the mature trees.

Stumpage was therefore higher in the U.S. — but labour, transportation and many other costs were lower.

In the past, trade tribunals have ruled in favour of the Canadian softwood producers, but that hardly matters in the softwood dispute.

Far more important is politics, including the anger and intransigence of the American softwood producers. And there are reasons why this may be the worst possible time for Canada to renegotiate a softwood trade deal.

On the matter of trade, Trump has poisoned the well with his repeated assertion that NAFTA has "destroyed" the U.S.

This is hugely ironic to Canadians who buy so much from the United States, who have higher unemployment rates than the U.S., who shop at American companies like Walmart and Home Depot, who are bombarded by American products and entertainment, and export raw materials to the U.S. to be processed and sold on to other countries.

Bad timing

As much as wiser heads in the U.S. government reject Trump's trash talk on trade, this is no time for American negotiators to force through a deal that would make U.S. producers unhappy. 

Trump may have got up their protectionist dander, but the real reason American softwood producers are feeling the pinch of Canadian exports is a low loonie. 

As Bank of Canada governor Stephen Poloz has told us repeatedly, the crash in Canada's oil economy was a cloud with a silver lining because it drove the Canadian dollar down, putting Canadian exporters in a better position. 

That doesn't do much good if U.S. producers act like protectionist bullies and force Canada to curb its exports. Especially if Canadian producers are locked into an unfavourable deal for another 10 years.

Too bad our negotiators weren't able hammer out a deal when the Americans were desperate for our oil and the Canadian dollar was high.

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Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.