Trump administration rekindles trade conflict with Canada by slapping tariffs on lumber
President Donald Trump at CPAC on February 24, 2017 (Michael Vadon/Flickr)

The United States rekindled an old trade conflict with Canada when it announced Monday that it was slapping new tariffs on Canadian softwood lumber imports.

The US Commerce Department said it had reached a "preliminary determination" that Canada is improperly subsidizing softwood lumber exports to the United States. Softwood lumber is used mainly for home building.

The Commerce Department said that, after talks failed to reach an agreement, it would impose "countervailing duties" of between three and 24 percent.

The department "will instruct US Customs and Border Protection to collect cash deposits based on these preliminary rates."

Furthermore, "certain companies will be subject to the retroactive collection of cash deposits" for up to 90 days.

Officials in Canada, the second most important US trade partner, rejected claims of subsidies.

The US Commerce Department said that in 2016 softwood lumber imports from Canada were valued at $5.66 billion.

- 'Unfair,' 'punitive' -

"Canada disagrees strongly with the US Department of Commerce's decision to impose an unfair and punitive duty. The accusations are baseless and unfounded," a statement signed by Foreign Affairs Minister Chrystia Freeland and Natural Resources Minister Jim Carr read.

"This decision will negatively affect workers on both sides of the border, and will ultimately increase costs for American families who want to build or renovate homes."

Canada "will vigorously defend the interests of the Canadian softwood lumber industry, including through litigation," it said, adding that it has prevailed in international tribunals on the issue since 1983.

The softwood lumber dispute between Washington and Ottawa has seen many twists and turns for nearly 35 years, with US producers accusing their Canadian counterparts of exporting lumber at subsidized prices.

Canada, the United States and Mexico are part of the North American Free Trade Agreement. However, Canadian softwood exports are regulated under a bilateral agreement reached in 2006, which expired in 2015.

President Donald Trump, who took office in January, spent much of his campaign blasting the NAFTA agreement and stating that he would renegotiate it to get a better deal.

Trump's campaign attacks focused mainly on Mexico, but recently he has focused on Canada, especially over dairy imports.

- 'Bad week' -

"It has been a bad week for US-Canada trade relations," US Commerce Secretary Wilbur Ross said in a statement.

On April 17 "it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States. Today (Monday), in a different matter, the Department of Commerce determined a need to impose countervailing duties of roughly $1 billion on Canadian softwood lumber exports to us.

"This is not our idea of a properly functioning Free Trade Agreement," Ross said.

Following these emergency measures, the Commerce Department said it will conduct a thorough investigation and confirm its position by September 27.

If confirmed, the tariffs would then have to be approved by the US International Trade Commission (USITC).

Ross said that he and the Canadian ministers "tried to negotiate a settlement but we were unable."

Canada "has put forward a number of reasonable proposals to the current US administration that is responsive to views expressed by US industry," the statement from Canada's Freeland and Carr read.

"We remain confident that a negotiated settlement is not only possible but in the best interests of both countries."

Trump has said he believes too many US industrial jobs have gone abroad, especially to Mexico, and that the United States is the victim of unfair trade practices by both of its NAFTA neighbors.

Last week Trump suggested possible sanctions in the steel sector, stating that he believes the decline in domestic steel production due to cheaper imports is a national security issue.