Starting a trade war, especially with one of our closest allies and largest trade partners, isn't very smart policy. But Canada was subsidizing their logging and likely their dairy industry as well, thereby giving them an unfair advantage over American logging and dairy industries. That's the kind of free trade that has negatively affected American workers and industries for decades now. If they want to enjoy tariff free trade with us, then our industries should be on equal footing and thereby able to compete. Canada was given a 90 day notice in advance of this action to address the issues, but they refused.
Virtually everything is wrong here. Softwood lumber and dairy are two separate issues but they have one thing in common in that neither is covered by the NAFTA agreement.
1.Softwood lumber.
Canada and the U.S have different rules and history on forestry. In the United States, many forests are privately owned, and those that are owned by the government are essentially sold for long periods of time to logging companies by auction at public auctions. In Canada, provincial governments lease out logging rights to companies and the companies pay a tax called a stumpage fee for each logged tree.
The United States logging companies have decided that these stumpage fees are an unfair trade subsidy in comparison to either the auction costs when the lands are auctioned off, or, when the company owns the lands outright, for the roads and other improvements they have to pay for themselves in order to access and ship out the timber. In Canada, since the government continues to own the land, the governments pay for the roads.
Although this is not part of the NAFTA agreement, since both Canada and the U.S are members of the WTO, Canada has sued U.S governments who have placed duties on Canadian lumber over this alleged unfair trade subsidy under the WTO provisions and auspices. Canada has won every single time as the various courts have ruled that the stumpage fees charged provide the governments a fair return. However, as the saying goes "how many divisions does the WTO have?"
Every time Canada wins the case, the U.S and the American lumber companies simply proceed to another court.
This is protectionism pure and simple and the U.S lumber interests form a very powerful lobby who have been very successful at what economists refer to as 'rent seeking.'
Those who gain from the tariffs are the owners of the lumber/logging companies, pure and simple. The tariff is a direct tax from people who buy goods with more expensive lumber (whether Canadian or American) that goes straight into the pockets of the company owners. In virtually all cases where the government has imposed this tariff, the rules even stipulate that the money from the tariff goes to the so-called aggrieved party: the U.S lumber company.
2.The situation in dairy (and poultry) is that both Canada and the United States provide enormous subsidies to their farmers. In the U.S, this subsidy is direct, in Canada it is in the form of so-called 'supply management' which is, in reality, a monopoly cartel.
Ideally both the subsidies and the cartel should be eliminated, but, while Trump decries the Canadian system, I suspect he'll be less interested in taking on American dairy farming interests.
I don't think there is any connection between the softwood lumber duty and reopening NAFTA. Canada and the U.S negotiated a 10 years softwood lumber agreement over all of those issues in 2006 (it limited the amount of softwood lumber that could come into the U.S from Canada),and that deal expired last year. President Obama was apparently unwilling to have the U.S negotiate a new deal that would bind the hands of his successor.
