Canada to Fight US’ Punitive Duty on Softwood Lumber

Bank of Canada Governor Stephen Poloz has been highlighting the dangers of protectionism, and the country will probably get a taste this week as the US is expected to issue preliminary countervailing duties on softwood lumber.

Bank of Montreal said in a report that it expects duties in the range of 20% to 30%, with additional anti-dumping duties coming later in the year that could reach another 15%. And in a round-table interview with reporters, Poloz said the measures will probably have some impact on the nation’s economy, Bloomberg reported.

“It is an important business for Canada, it’s got a lot of employment in it and it’s geographically diverse,” said Poloz, who was speaking in Washington where he was attending meetings of the International Monetary Fund. “It matters.”

The Bank of Canada has already added a “modest amount of negative judgment” into its forecasts, using a historical analysis of how countervailing duties affected lumber exports in the past, Poloz said.

Canada exported almost C$16 billion ($11.9 billion) worth of lumber in the year through February, levels not seen since 2006, as Canadian producers took advantage of unfettered access to the US market after the last softwood lumber pact between the two countries expired in October 2015.

The run-up in lumber sales gave a significant boost to Canada’s struggling export sector last year—providing about one quarter of the increase in the country’s non-energy exports.

When the US last imposed countervailing and anti-dumping duties on Canadian lumber in 2001, exports fell by about 12% over three years.

In the interview in Washington, Poloz touched on a number of issues—from Ontario’s housing measures to geopolitical risk.

Poloz said he’s happy Ontario took steps to slow Toronto’s housing market and expects they will make a “contribution”. He reiterated that he doesn’t think interest rates are the right tool for managing such a risk.

The Toronto housing market would probably have slowed regardless of any measures, since the price escalation would inevitably sap demand.

On business investment, he said while companies seem to be more prepared to spend, there’s no sign of the “expansionary investment” the bank is looking for. That sort of investment “as a macro phenomenon, it’s not really there”.

At a time when global economic data seems to be stronger than policy makers had been expecting, Poloz conceded the long period of serial disappointment could be producing more cautious economic forecasts.