(Update at bottom)
During the question period at the January 16, 2017 City Council meeting you can hear me asking council if the protectionist inclination of the incoming administration in Washington is being taken into account in their equations about the financial future of our town and its budget. They say it has been and that they have talked with Interfor to get their take on this. They said that they were told by Interfor that Interfor is planning expansion. You can hear the Mayor say this in the answer below.
That’s nice to hear but I have to wonder if Interfor is telling our city council what they think it wants to hear. I have no inside information that says otherwise and I don’t really want to accuse anyone of fibbing . . . but I’m a taxpayer here and I think that I, and everyone else here, have valid reasons to be concerned.
Anyone who has lived in this area for the past 20+ years might have noticed a kind of merry go round that the US softwood lumber industry likes to ride. They accuse Canada of not playing fair, saying the lumber we sell into the US market is unfairly subsidized by the government and they push their government to levy protectionist fees on imports (countervailing charges). Then we go to the trade panels: NAFTA panels and WTO tribunals for instance. And eventually they lose. They almost always lose. But it doesn’t stop them. And they never repay all the money that our industry loses while the protections are in place. Like some insurance companies they seem to be able to weasel out of paying the full amount. And then they go and do it all over again.
Well guess what the US lumber industry did in November after Mr. Trump got elected – they pushed for an investigation on unfair subsidies they say the Canadian government employs to give our lumber products a competitive advantage against US lumber.
And on January 6 the U.S. International Trade Commission agreed with them. That means countervailing duties will get applied to lumber crossing into the USA.
In the past this would result in Canada taking them to a trade tribunal to get a hearing and decision. And in the past it’s gone our way. But this time they have elected a president who says he will tear up the NAFTA trade agreement. (or revisit it at the least) So that tribunal may not be there to go to if he has his way. And given Mr. Trump’s expressed protectionist leanings he may not want to recognize the WTO as a body that can say no to him either.
IF that turns out to be the case then this time there won’t be any light at the end of this trade dispute tunnel.
Why does this concern me?
There are two bread and butter paycheque industries in town and one of them, Interfor, runs on softwood lumber. If it sputters and goes into a reduced production state that means fewer good paycheques. If the mill goes into shutdown that usually means some families will leave in search of those paycheques. It leads to a reduction in the money sources paying into the taxes that pays for our town. Reduce the amount going in and you get (1) a reduction in the optional projects the city wants to do and (2) those of us left behind get to pay a greater share of the load.
The other big industry, ROXUL, sells some of its product into the US – I’m not sure how much and don’t know what impact Mr. Trump’s protectionism might have on them.
Let’s revisit Interfor for a moment.
If you listen to what council said they were told by Interfor that Interfor wasn’t worried and that they were expanding. Well Interfor now owns more mills in the USA (13) than they do in Canada (5). So they could say with a straight face that they are expanding but leave out details like that expansion is in the USA and not here. It depends on what question they were actually asked.
I wasn’t party to the discussion with city council and I’m not saying that this is the case but if the USA makes Canadian lumber sales into their country too expensive Interfor cannot stop them. And unless Interfor’s output from the mill in Grand Forks is slated for another market they would have to make business decisions that reflect the new economic reality. Let’s hope that they’re selling our lumber elsewhere or else . . .
Mr. Trump says he thinks the US dollar is ‘too strong’. This is the 2nd part of a one-two trade punch. 1st part puts tariffs on imports making it easier for US buyers to buy home grown products. 2nd part makes it easier for foreign buyers to buy US products because their currency goes further in the US than it did when the US dollar was stronger. Interestingly he accuses China of manipulating their currency for the same reason but when they do this he considers it an unfair practice.
There’s one more kick in the balls for Canada courtesy of Paul Ryan and the Republicans: a Border Tax proposal. Simply put this would hit American businesses that use imported inputs in their tax deductions. Essentially adding 25% to the cost of imported goods like Oil. And Canada exports more oil into the USA than any other country. And maybe Slag and Insulation as well. This is a bit of a bone of contention with Mr. Trump though – he doesn’t agree with his Republican party on this.
Now you might consider all this to be alarmist fear mongering and in normal times I might agree with you. But Mr. Trump is not your normal president and the things I’ve mentioned above aren’t bad dreams coming from my head – they are the things he and the Republican party are saying they want to do. At some point in his presidency things may settle down to something approaching what we’ve come to see as normal but until then his administration, the USA and all the countries it has anything to do with will be in a state of turmoil. And as the saying about elephants and mice goes that does not bode well for little mice like us.
UPDATE: Mayor Konrad got back to me and gave me more information on his conversation with InterFor. He says they were specific in their reference to fresh investments in their operations here in Grand Forks. Upgrading existing infrastructure and some expansion.
Something to look for(ward) to.
Dec 20, 2016 Softwood lumber dispute: U.S. commerce department officially launches investigation
U.S. International Trade Commission says Canadian softwood lumber caused harm
Vaughn Palmer: All signs point to punishing lumber duties from U.S
For a history of these disputes check out this Wikipedia article
For more information on the border tax proposal