Canada’s soft lumber and dairy are easy targets for Trump’s ‘America First’ strategy

Donald Trump is a very media-centric public figure. And because the chatter in DC now is of Trump as a legislative failure during his first hundred days in office, Trump needs a win – and Canada is an easy target. Here’s why.

First, let’s remember what the objective for Trump here is. He campaigned on a promise of putting America’s interests forward above all others. This means taking unilateral action in a way that previous US presidents have not done. We’ve seen this on foreign policy now with Syria. But most Americans don’t have foreign policy uppermost in mind. And with his immigration ban, Obama healthcare repeal and Mexico-paid wall promises stymied, Trump needs a domestic policy win.

Now Trump made very specific promises after the election. And if you run through them all, he hasn’t achieved legislative success on a single promise. With his reputation as a ‘doer’ in mind, he must fall back on executive and unilateral actions now in order to notch up wins that he can present to his base as evidence that he is an effective President. This is especially true given rumours that, shortly, he will compromise on the wall with Mexico in order to avoid a US federal government shutdown. This is where Canada comes into play. 

If you read the Canadian press, they make no bones about Canadas protectionist measures on dairy and the longstanding dispute on soft lumber. Even under US President Obama, these issues were in dispute. Now dairy farming is one of Canada’s largest agricultural sectors, with a big presence in eastern and western provinces. It is $19.9 billion of GDP and 220,000 jobs according to the Dairy Farmers of Canada lobby. So the industry is protected by high import tariffs. The duty on milk, for example, is 270%.

Softwood lumber is slightly different. The dispute there is about the Canadian government owning forest lands. The US forestry lobby claims the Canadian provinces in effect subsidize their industry by charging low royalty rates. And since the US imported $5.7 billion in lumber last year, that’s a bone of contention.

Bottom line: these are easy targets.

Why this matters. While the Canadian dairy industry is big domestically, lumber is a bigger trade issue than dairy. We’re talking $5.7 billion in imports for lumber versus a measly $112.6 million for dairy. But both are a drop in the bucket in a trade relationship that moves $2 billion of trade daily and where the US exports $267 billion of goods and services.  

The biggest impact here will be on US homebuilders who will face higher costs as a result of the Trump Administration’s soft lumber tariff, which is retroactive for 90 days. Dairy tariffs are likely coming next, especially as retaliation for a recent tariff on ultrafiltered milk that had slipped through the cracks of Canada’s dairy duties. The overall economic impact will be muted, however. For Trump this is a marker to show he means business and that he keeps his election promises. For his political image, he clearly believes these actions are important. For the US economy and for the Canadian economy, they are unimportant. 

There is one other issue here: NAFTA. Before these disputes came to a head, the thinking in Canada was that a NAFTA renegotiation would not deal specifically with dairy because agriculture is such a protected industry, it complicates large-scale trade deals. Dairy may be in the negotiation. Also, the fact that Trump is talking about dairy makes the likelihood of a WTO challenge to Canada’s dairy pricing more likely.