More Bark than Bite in Trump’s Canadian Lumber Tariff

softwood lumber
AP/CP/Richard Lam

When the Trump administration announced Monday that it would impose new tariffs on Canadian softwood lumber imports, it elicited protests from Canadian officials, American home-builders, and free-traders.

“We will be putting a very big tariff on the lumber coming into the country,” President Donald Trump said.

Canadian foreign minister Chrystia Freeland warned that the move would hurt U.S. families by raising the price of materials needed to build new homes. “You need our lumber. You need our lumber to build your homes,” Freeland said in an interview on CNBC.

Beyond the headlines, however, there are signs that there may be less to the new tariffs than meets the eye. For one thing, lumber prices actually declined after the tariffs were announced. Lumber futures fell on Tuesday by the $10 exchange limit in Chicago, a 2.5 percent drop. The prices of Canadian lumber companies rose, some sharply. Shares of Canfor Corp were up by 8.09 percent on Tuesday and West Fraser Timber Co. Ltd. rose by 2.37 percent.

As it turns out, the 20 percent tariff was smaller than what the market expected. The Trump administration has actually adopted a gentler policy on Canadian lumber than analysts and investors had forecast.

It’s unlikely that the 20 percent tariff will have much of an effect on home prices, despite the protests of home buyers. Lumber prices make up a small fraction of the prices of new homes. And with the tariff coming in lower than expected and lumber prices falling, it’s just as likely that the announcement could slow rising home prices.

The lumber tariff is best understood as a symbolic gesture by the Trump Administration aimed at underlining its America First stance. The intended audience are trading partners in Europe, Japan, and Mexico. Taking a stand on Canadian lumber is a way of sending the message without seriously impeding larger trade flows. Canada is the model target for such symbolism because it’s unlikely to retaliate against the U.S. for the sanctions, and penalizing Canada doesn’t risk mixing in messier concerns over race, national security or immigration.

During a briefing on Tuesday, Commerce Secretary Wilbur Ross praised Canada as “a good neighbor” and played down the possibility that this was the beginning of a larger trade war.

The Trump administration also hoped the move would be welcomed by economic nationalists, first announcing the tariffs at a meeting with conservative journalists on Monday night. Many of Trump’s economic nationalist supporters have become increasingly concerned that the administration may be backing away from America First trade stance that was central to its electoral victory in November. The decision not to designate China as a currency manipulator, for example, has raised fears that trade reforms could take a back seat to other administration priorities.


Please let us know if you're having issues with commenting.