Recently, a few journalists and (unsurprisingly) the U.S. lumber industry have downplayed U.S. “trade remedy” duties’ potential contribution to skyrocketing domestic lumber prices, noting that current duty rates stand at “only” 9 percent for most imports from Canada — the largest foreign supplier and longstanding target of U.S. trade restrictions. Surely, many factors (most obviously pandemic-induced shocks to supply and demand and a beetle infestation in Canada) are causing the current situation, which is roiling the housing market, but discounting the duties’ effects just because the current rate is relatively low ignores how these duties are actually applied and how both the U.S.-Canada lumber dispute and our trade remedies system more broadly inject significant uncertainty into the North American lumber market and discourage production and cross-border trade.
The bilateral lumber dispute dates back to 1982, with some form of trade restriction — trade remedy (antidumping and countervailing duty) measures or “voluntary” restraints subject to bilateral “Softwood Lumber Agreements” — applied to Canadian lumber imports for most of that time. As detailed in the above link, however, these restrictions changed regularly according to the whims of the governments, the frequently-changing demands of the U.S. lumber industry, and the increasingly-creative methodologies employed by the U.S. Commerce Department’s International Trade Administration (ITA) to calculate the duties. This uncertainly, experts have found, has had long-term effects on investment in new lumber capacity in both countries. For example, Simon Fraser University’s Roger Hayter and colleagues in 2015 surveyed several sawmills in British Columbia and found that “the costs and uncertainties of the trade dispute basically constitute a ‘discount factor’ discouraging long term investments and, equally important, provide strong disincentives for long-term thinking with respect to adding value, product innovation and skill formation.” They further found that the dispute encouraged producers to diversify away from the U.S. market and to buy up American sawmills to avoid the aforementioned costs and uncertainties. As a result, the surveyed producers had little financial incentive to oppose trade restrictions in the future — not exactly ideal for U.S. lumber consumers.
Then there is the substantial uncertainty caused by the U.S. trade remedies system itself. In particular, the United States is the only country in the world that uses a “retrospective” system to calculate final duty amounts paid by U.S. importers of goods subject to AD/CVD orders:
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