Could Lumber Prices End a Decades-Old Trade War Between Canada and the U.S.?

American home builders and members of Congress are urging President Biden’s administration to try to strike a deal that could help bring down the cost of critical building materials. Part of the solution could be to finally end a trade dispute over lumber that has lasted since Reagan and Mulroney were in power.

Lumber prices remain far above pre-pandemic levels, even after falling sharply in recent weeks, an increase driven in part by strong housing demand and an abundance of home improvement projects during the pandemic. The higher-than-normal prices are among a wide range of supply chain complications that have cropped up as the economy picks up steam.

But unlike other commodities that have been in short supply, lumber is also the subject of a long-running trade dispute between the United States and Canada, adding a layer of diplomatic intrigue to the scramble for in-demand building materials. The two countries are locked in a thorny disagreement over softwood lumber, which is widely used to build single-family homes.

In the latest chapter of the dispute, the Trump administration in 2017 imposed duties on Canadian softwood lumber imports in response to what it deemed unfair trade practices. Now, with lumber prices driving up the cost of new home construction, the Biden administration is facing pressure to seek a resolution to the long-running spat.

The National Association of Home Builders, an influential trade group, has been particularly vocal about the issue, and numerous lawmakers have taken an interest as well. Last month, a bipartisan group of nearly 100 House members, led by Mr. Higgins and Representative Kevin Hern, Republican of Oklahoma, wrote to Katherine Tai, the United States trade representative, urging her to seek a deal with Canada.

But signs of diplomatic progress have been scarce, and in bad news for Canadian lumber producers, they may soon face higher duties. The United States Commerce Department said last month that it tentatively planned to double the duties later this year, to 18.3 percent from 9 percent for most producers.

The United States and Canada have been at odds over lumber since the 1980s. The saga has gone on for so long that lumber disputes over the years are commonly referred to with Roman numerals, akin to the Super Bowl. The current dispute is called Lumber V; Lumber IV took place during the George W. Bush administration.

The friction between the United States and Canada over softwood lumber stems in large part from the differences in how timber is harvested in the two countries. While most timberland in the United States is privately owned, most of Canada’s forestland is publicly owned, and companies pay fees set by provincial governments to harvest timber from their land.

American lumber producers contend that the fees are artificially low and amount to an unfair government subsidy. The United States and Canada have reached a series of agreements over the years regarding lumber imports into the United States, but the most recent deal expired in 2015.

“The core problem, and partly why you can never resolve this, comes down to structure,” said Eric Miller, a former Canadian official and the president of Rideau Potomac Strategy Group, a consultancy.

In 2016, toward the end of the Obama administration, the American lumber industry petitioned the government to impose duties on Canadian softwood lumber imports in response to what it contended were unfair trade practices. The proceedings continued under the Trump administration, which in 2017 imposed duties of 20.2 percent for most Canadian producers. The rate was lowered to 9 percent last year.

The status of the long-running dispute took on a new urgency as the price of lumber soared over the past year. The National Association of Home Builders estimated in April that higher lumber costs had added nearly $36,000 to the price of an average newly constructed single-family home. A benchmark for the price of framing lumber set a record high of $1,515 per thousand board feet in May, four times the price at the beginning of 2020, before beginning to plummet. Last week, the price stood at $930, still more than double its level at the start of 2020, according to Fastmarkets Random Lengths, the trade publication that publishes the benchmark. In Canada, things are no better – before the pandemic, a typical piece of 5/8″ plywood could go for around $45. However, he said that price hit around $130 before coming down to around $100 currently. Further, a typical 2,200-square-foot house built during the pandemic could have seen a $30,000 to $35,000 price increase (depending on the area) — and two-thirds of that would have been attributable to lumber increases.

Both countries’ have an interest, now more urgent than ever, to resolve this longstanding dispute. Whether or not that goal is accomplished is another matter. To use the Super Bowl analogy, we are likely headed toward Lumber VI.

Written by Jeremy Power, a lawyer in our Toronto office, with source material from The New York Times.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

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