Dairy, Forestry, and Canada Oh My!

Recently in the news Canada has gone after the United States about violating international trade rules. This isn’t the first time that Canada and the U.S. haven’t seen eye to eye in the last year in terms of trade. It seems to me that this back and forth over trade will only continue between President Trump and Prime Minister Trudeau. However, the underlying issue is more than just trade violations. This is about diary, forestry, and  North American Free Trade Agreement (NAFTA) all ultimately and potentially affecting more necessary goods for both countries.

Canada filed a 32 page complaint with the World Trade Organization (WTO) accusing the United States of breaking international trade rules dating back to 1996. The complaint challenges the way that the U.S. investigates products for subsidies and below-cost sales. I do not find Canada taking this action surprising given the trade conversation in the last year and the United States unwillingness to negotiate. However, there is more to the complaint according to Canada, which is using it to preserve forestry jobs.

Last spring there was tension between the United States and Canada that was initially started by President Trump. He was unhappy about how Canadian prices were hurting the Midwest dairy industry. Now that dairy appears to be have been settled due to the specific type of milk not pertaining to NAFTA, forestry is the next industry of contention. The United States currently is imposing a sanction on imported Canadian softwood lumber.

Both economies but more specifically the people in these sectors are going to continue to be used as bait to get the other country to bend. President Trump is keen on isolating the United States in terms of trade and backing out of NAFTA. I find it obvious that Prime Minister Trudeau stills feels the best action is to push back at the United States. This must seem more beneficial to him given the filed complaint. Naturally, the US is calling the claims to be unproven.

The only way Canada comes out ahead with this drastic action is if it leads to conversing with the United States and lower lumber sanctions at a minimum. I see this to be unlikely, especially if the United States is found to be in the wrong by the WTO. Given President’s Trump actions and rhetoric up to this point if that’s the case then I foresee him doubling down on Canadian sanctions and backing out of NAFTA as soon as possible. On the opposite side, Canada may get what they want and a little more if the United States is in the wrong. If the United States hasn’t violated anything then I am expecting President Trump to hold this ordeal over Canada’s head until he either wants something or uses it to solidify his backing out of NAFTA.

Since both countries are key components of  NAFTA and heavily intertwined in each other’s trade, I hope they can reach a compromise. If milk and lumber are unable to able to bring both leaders to the table to come up with a balanced trade agreement the future isn’t looking good. I only see NAFTA slipping further away with tensions rising and the situation worsening for both countries.