US softwood tariffs a sniper move
The Trump announced it will be imposing trade on Canadian softwood lumber, fanning the flames of a 30-year-old dispute that defies logic and relies heavily on comparing apples and oranges and will end up in court yet another time.
This is cringe worthy but not for the obvious reasons.
It will kill jobs. It will cause hardship.
This dispute has nothing to do with forest tenure and forestry practices.
I started my career as a forester and most likely I would have never joined the editorial board of InvestorIntel without the advent softwood dispute. Like many in the industry I had to reinvent myself.
The last iteration, which started in 2008, nearly decimated the Canadian forest industry so badly that I spent a large amount of time consulting for companies and communities that were looking for new ways to support a sunset industry.
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When faced with import tariffs there is a joke among insiders in the Canadian sawmilling industry: “We lose $10 per thousand board feet but we make it up with volume until we go bankrupt.”
But Canadian sawmillers have two distinct advantages over their US counterparts: a favourable currency exchange rate and a lasting tradition for modernizing their operations.
The advantage of Canadian loggers: a twenty-five percent premium on their wood when it crosses the border to the USA. But then, wood is extremely expensive to move because of its low value per density, which makes the cost of transportation very high.
Sawmillers spend massive amount of time drawing economic maps for the delivery of their wood. In the end the cost of transportation chews up into the favourable margin afforded by the exchange rate.
Are provincial governments subsidizing softwood lumber? One needs to get a forest management permit (the language differs from province to province) to understand the immense number of regulations imposed on forest operations: biodiversity conservation, stream protection, reforestation, stumpage fees, labour regulations, unions, and the transport regulations.
Making money from sawmilling SPF (Spruce-Pine-Fir which is softwood) is painfully hard. According to American lumber producers, this is because of the underhanded subsidies the Canadian government has granted to its timber producers. In America, most softwood timbering takes place on private land, and the lumber is priced to recover the full cost of owning and maintaining many acres of trees. In Canada, forest resources tend to be owned by the government, which sets “stumpage fees” (the cost for cutting down a tree, which used to be assessed per stump and is now usually assessed by board feet or cubic meters).
One needs to be a logger or a sawmiller for a few days to understand that the Canadian provincial governments are not helping the forest industry. In fact I have sat in many meeting with deputy ministers who always make a point that they don’t subsidize the forest industry by fear of being perceived of reprisal during trade disputes.
Canadian sawmillers will tell you that their US counterparts have failed to modernize their operations. And so their profitability is low even when considering their proximity to market.
Over the years Canadian sawmillers have modernized and rationalized their operations to save every penny they can. It is a fiercely competitive industry.
By no means do I want to trivialize the pain of US producers who are struggling to make ends meet but it is unfair to blame Canadian loggers for their pain.
Why is the Trump administration making a big deal of this? Because President Trump seems to win at a time when his many initiatives are challenged from inside the US borders.
It’s a sniper move for sure.
But in truth we can’t vilify the Trump administration. The softwood debate is so persistent in the forestry culture that it could easily have been the brainchild of the Hillary Clinton administration.
Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>