What's going on?
The Trump administration announced late on Monday that it would be slapping a tax of about 20% on lumber imported from Canada (tweet this). The move might be an indication that the administration is serious about making changes to America’s trade relationships.
What does this mean?
The “softwood” lumber dispute with Canada, which involves the type of wood that is typically used to build homes, has been going on for decades. In the US, forests are usually privately owned, but in Canada they tend to be owned by provincial governments. The US lumber industry claims that Canadian producers are allowed to log the forests at a below-market rate, creating a subsidy and, therefore, an unfair advantage. In 2006, a temporary settlement was reached, but that expired in 2015 – and it appears that President Trump is reviving this long-running dispute to assert his administration’s trade policies.
Why should I care?
The bigger picture: The administration says it’s determined to put an end to “unfair” trading relationships.
A senior Trump administration official said on Tuesday that America’s major trading partners have “the rhetoric of free trade but the reality of protectionism”. His suggestion is that other countries have rules that protect their own producers at the expense of US exporters (e.g. restrictions by other countries on American dairy products), while the US doesn’t have the same rules. Assuming the Trump administration wants to combat this perceived unfairness, it will likely introduce new impediments to trade on other countries.
For the markets: Less trade is typically bad for companies’ profits.
Companies usually benefit when they can choose where they buy their supplies from and, therefore, higher barriers to trade are generally bad for stocks. International companies that export to the US and those within the US that import goods (like retailers) are particularly vulnerable. More barriers to trade could also affect US exporters, as other countries would likely retaliate with anti-trade measures of their own.