A Trump tariff on Canadian lumber isn't as crazy as you're being told

I guess things were getting a bit boring in the Oval Office this week and President Trump felt that he needed to toss another log on the bonfire. This should fill the bill nicely, as both conservatives and everyone in the media who loves a GOP circular firing squad are all over it. In response to some news about unfair trade practices involving Canada, the President decided to announce that he was planning a new tariff on lumber from the Great White North. (Bloomberg)

U.S. President Donald Trump intensified a trade dispute with Canada, slapping tariffs of up to 24 percent on imported softwood lumber in a move that drew swift criticism from the Canadian government, which vowed to sue if needed.

Trump announced the new tariff at a White House gathering of conservative journalists, shortly before the Commerce Department said it would impose countervailing duties ranging from 3 percent to 24.1 percent on Canadian lumber producers including West Fraser Timber Co.

“We’re going to be putting a 20% tax on softwood lumber coming in — tariff on softwood coming into the United States from Canada,” Trump said Monday, according to a tweet by Charlie Spiering, a White House correspondent for Breitbart News. A White House official confirmed the comment.

I’m outside the mainstream of most conservatives on the subject of fair trade and the situation President Trump is seeking to address here is a prime example of why. I believe wholeheartedly in free and open competition in the market, but that only works inside the United States market if two provisions are in place. First, our government needs to keep its thumb off the scale and not pick winners and losers among American companies. (That’s in important distinction.) Second, the open field of competition quickly becomes poisoned with the arrival of so called “free trade” deals with other nations who don’t play by the same rules that our companies have to follow, so that threat needs to be mitigated.

Now, I don’t know if having the President suddenly unleash a hefty tariff on the Canadian lumber market will wind up being the best solution, but let’s not turn a blind eye to the very real underlying problem which is prompting this. If the estimates from the Commerce Department are accurate, Canada is currently subsidizing the sales of more than a half dozen different Canadian lumber companies at rates of anywhere from 12 to 24 percent. As soon as they start doing that, their companies are able to begin selling their products at rates which are significantly below the break even, profitability point without suffering the consequences of doing so which would afflict any company attempting it in a true free market scenario. That means they can undercut American lumber companies, costing us business and jobs.

That may sound like “free trade” to you, but it’s hardly anything approaching a fair deal from a nation which is ostensibly our reliable ally and trading partner. We run into the same thing in other friendly nations like France, where they massively subsidize their steel industry. It’s tricks like these from governments with no core beliefs in the free market which have hollowed out American manufacturing, textiles and raw materials development for decades.

So before you begin setting your hair on fire and shouting “Smoot–Hawley! Smoot–Hawley!” from the rooftops, let’s give the administration a chance to play a few cards here. It may turn out that a serious threat of a balancing mechanism like countervailing duties will be enough to get the Canadians to play fair and stop subsidizing their companies’ sales. Striking a deal would be better than a trade war to be sure, but there will be no deal if there isn’t a credible threat of retaliation from our side and we simply get rolled over again.