Donald Trump's 'Goofy' Trade War With Canada: Explained

Over the last few months, the Donald Trump administration has learned a hard fact: America's mild-mannered neighbors to the north have a back bone. And they have spunk, too.

They may like being called a 'friend' by the U.S. president, and the Canadian government may consider the U.S. its premier trading partner. But for Canada, when it comes to milk and softwood lumber -- the two commodities that helped cement its foothold in the global marketplace -- protecting its economy comes first.

Canada's 'subsidized' softwood lumber

The heart of the discord between Canada and the Trump White House is the cross-border softwood lumber trade, a headache that has vexed presidents and prime ministers of both countries for decades.

Some place the start of the U.S.-Canada disputes as far back as the 19th century when Canada's lumber industry was first gaining its strength. Others point to the late 20th century when the two countries sat down and hammered out the first of many accords. But either way, the Canadian softwood industry has been crucial to the economy of both countries.

Exports, which now figure in the billions of dollars, prop up the American home construction industry. Back in Canada, that revenue fuels the growth and management of publicly-owned forests.

But American lumber companies say Canadian softwood is subsidized by its government before it ever arrives to the U.S. border. That's because the Canadian government manages not only the amount of trees that are cut on its publicly-owned Crown lands, but also the fees that lumber companies pay to harvest them. In effect, this process ensures the affordability of an industry that kept Canadian towns in existence for centuries. It has also been backed by World Trade Organization rulings.

Former U.S. President George W. Bush and former Canadian Prime Minister Stephen Harper called a temporary detente by agreeing to limit Canadian lumber imports until 2015. But the absence of a new agreement when Trump took office (the Canadian government now admits that was a mistake) provided fertile ground for new disputes over what some say is a philosophical difference about how to manage forests and resources.

The U.S. Commerce Department renewed this fight last month by slapping tariffs on products from five Canadian companies it said were receiving subsidies. The department set those tariffs according to the subsidies the companies received, which ranged from 3 to 24 percent. It also levied a tariff of 20 percent against all other Canadian softwood exports.

The tariffs put new pressures on Prime Minister Justin Trudeau, who is determined to prove to Canadians that he can not only communicate with Trump effectively, but that he can also stand up to the U.S. president's jabs against Canadian policies.

This month Trudeau informed the administration that Canada may strike back by banning the transport of thermal coal exports through Canada.

This salvo won enthusiastic support from Canada's western province, British Columbia, where some 94 percent of U.S. thermal coal shipments pass on their way to Asia and other destinations.

But it garnered rebuke from former U.S. President Jimmy Carter who, in a rare move, has supported the Trump administration and called for enforcement of U.S. trade laws to protect American lumber industries.

But Canada may not be finished with the issue. This week the Canadian government raised the inevitable topic of U.S. industries that it says also benefit from subsidies. According to one source, Canada is investigating the possibility of imposing its own tariffs against Oregon exporters that get price cuts in the U.S.

No spilled milk here

Then there are the Canadian dairy farmers and the Canadian manufacturers: two groups that have been at odds recently over the use of cheaper U.S. dairy imports.

Ottawa places production quotas on Canadian milk to ensure against over-production. It also places tariffs and limits to control the amount of milk that is imported; a measure the government says protects Canadian farmers. But critics say the result is higher dairy prices at Canadian supermarkets. It also makes it hard for the U.S., which does not place controls on its dairy industry, to sell large amounts of milk to Canada.

Unless, that is, it's a new ultra-protein-rich product that is being manufactured by U.S. dairy companies. Canadian laws exempted that product from limits and tariffs, encouraging Canadian manufacturers to bolster their supply chain with cheaper U.S. protein sources.

That brought Ninja, the Holstein cow to the rescue.

In June 2016, Canadian farmers, fed up with revenue losses from U.S. dairy imports, staged a media-grabbing protest at the steps of Canada's Parliament in Ottawa. A long line of clunky field tractors, traffic gridlock and their cud-chewing media rep helped to convey just what Canadian farmers wanted Ottawa to hear: Canadian industries should come first when it comes to trade policies -- and loopholes.

Ottawa, for its part, did little to settle the fray. According to dairy representatives, it was good ol' conventional negotiations that forced the Canadian dairy farmers and manufacturers to sit down and come to an agreement: The farmers would lower their price for proteins, and domestic manufacturers would stick around and buy from Canadians.

Once the agreement was struck, Ottawa stepped in and shut the import loophole that allowed U.S. importers to ship their milk products across the border. Trump fired off an angry tweet in response, followed by a firebrand speech in Wisconsin where he promised to "call Canada" and investigate the change of policy.

More complex trade with Canada?

To President Trump's credit, his ire on both of these issues has managed a rare feat: It unified a small but significant group of Democrats and Republicans who feel that U.S. industries are getting a short shrift at their northern border. And it prompted questions about the best way to negotiate with global partners for mutual benefits.

Trump's response has elicited a rash of criticisms from former U.S. ambassadors who are well acquainted with trade issues between the two countries and have questioned the administration's use of public tweets and statements instead of patient, diplomatic discussions.

"Words matter. Words matter diplomatically," Bruce Heyman told a gathering organized by the Council of the Great Lakes. "Words matter with leaders. And I think the words that have been used have been unfortunate and have not been constructive."

"It's goofy stuff," James Blanchard, a former governor of Michigan and U.S. ambassador, said bluntly of Trump's tweets about Canada's dairy regulations, "and frankly unbecoming of the leader of our country."

For now, the adversarial relationship between the U.S. and Canada means that the American housing market may become more expensive as builders -- and consumers -- foot the bill for softwood tariffs passed on by rising costs. And in a feat not seen in years, it also means that Canada may very well solidify new liaisons with other trade partners in the coming months. The province of British Columbia has already started shipping lumber to China, and talks between Mexico and Canada have yielded a new diplomacy between the two countries' young statesmen bent on ensuring they have the best and strongest trade advantages for their respective nations.

Whether Donald Trump succeeds in "making America great again" is yet to be seen. But his galvanizing speech does seem to be having an impression in Canada and Mexico, where industries once in liaison with America's interests are finding their own path to even greater resiliency.

Flickr images: 1) meridican 2) hobvias sudoneighm;