The Canadian dollar fell below 70 cents US this week for the first time in close to 13 years.
It’s gloomy economic news, but one upside is that the dollar’s slide can benefit Canadian commodity exporters. When it comes to the contentious timber trade between Canada and the United States, however, the cheap dollar could stir up some simmering softwood lumber tensions.
U.S. protectionism rears up
A low Canadian dollar provides some benefits to Canadian commodity exporters. With production costs in Canadian currency, companies exporting to the United States who receive sales revenue in U.S. currency make higher profits when the loonie is lower.
That means Canadian companies selling lumber to customers in the United States under the current currency exchange rate can expect higher profits – something that’s certain to add fuel to the already strongly burning fires of protectionism within the U.S. lumber lobby. Perpetually concerned about competitive imbalances, the U.S. Lumber Coalition is strongly opposed to another softwood lumber agreement (SLA) with terms similar to the deal that just expired.
Catalyst for higher export tariffs?
Depending on how Canadian companies market their product, they can either sell softwood into the U.S. at a discount, or enjoy greater profits. Either way, this could lead to some trade tension as the Americans may demand that a future SLA include higher export tariffs than those in the recently expired agreement.
The U.S. is restricted from placing tariffs on Canadian softwood crossing its borders until October 2016, when a one-year clause preventing trade action expires. The U.S. Lumber Coalition is, unsurprisingly, making noises about using U.S. trade litigation to place tariffs on Canadian softwood lumber if a new agreement is not reached by October.
Without a new SLA in place, a low dollar is likely to encourage the Coalition to push for even higher tariffs on Canadian softwood.
Here we go again…
– Naomi Christensen is a policy analyst
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