Trade tensions between Canada and the United States appear to be on the rise. This as threats of trade retaliation over Digital Services Tax are made.
One thing we have been warning about with Canada’s Digital Services Tax is the seemingly inevitable trade war it could spark. Canada’s mainstream media and the government have long downplayed the threats by either not reporting on it or defending the Digital Services Tax as something that is compliant with all of Canada’s trade obligations. The problem is that all signs are pointing to things going sideways just like how the Online News Act went sideways. This with experts like us warning of the consequences, officials and mainstream media ignoring those warnings, then those consequences coming to fruition.
Over the last couple of years, the US has sent multiple warnings and issued numerous letters, saying that if the Canadian government followed through with the implementation of the Digital Services Tax, there would be consequences. All of those warnings, however, were ignored. So, it wasn’t a surprise that when Canada implemented the Digital Services Tax, US lawmakers went ballistic and called for a “quick and decisive response“. So, it’s really not a matter of “if” these sanctions are going to hit, but “when”.
An understandable perspective in all of this might be a sense of skepticism that the US would initiate a trade war. There is certainly a degree of logic here. Both Canada and the United States are still recovering economically from the COVID-19 pandemic. Both countries are battling to bring inflation back under control. Stock markets are in a fragile state and the general economies of both countries are still struggling to get back up and running. Yes, the US is upset, but would they really risk adding a certain degree of uncertainty in the economic picture in these economically delicate times? Well, today, we got an answer to that. That answer is “yes”.
News surfaced today that the US has dramatically increased duties on softwood lumber. Those duties are going up from 8.05% to 14.54%. From the CBC:
The U.S. is dramatically increasing the duty it charges on softwood lumber imports from Canada, setting the rate at 14.54 per cent. The previous duty was 8.05 per cent.
The new rate was shared with trade groups and government officials on Tuesday, but was not immediately posted to the U.S. Federal Register.
In a written statement, Mary Ng, minister of export promotion, international trade and economic development, called the increase disappointing.
“Baseless and unfair U.S. duties on softwood lumber unjustifiably harm consumers and producers on both sides of the border. This latest measure will negatively impact workers and their communities,” said Ng.
In British Columbia, Bruce Ralston, minister of forests, echoed Ng’s sentiments.
“I am immensely disappointed with the U.S. Department of Commerce’s decision to increase unfair and unwarranted softwood lumber duties,” said Ralston.
Niquidet, Ralston and Ng all vowed to challenge the U.S. decision with litigation under the North American Free Trade Agreement (NAFTA) and the Canada-United States-Mexico Agreement (CUSMA) at the U.S. Court of International Trade and at the World Trade Organization.
While there is no direct connection that we could see with softwood lumber and the Digital Services Tax, it does show that the US is willing to hit Canada with increased duties and trade sanctions. If you are hoping that the fragility of the economy will stop the US from slapping Canada with trade sanctions, this latest development is not a good sign. To those who thought that the trade concerns might have been either overblown or just hot air coming from the US, well, this latest development is not exactly something that inspires confidence that this is actually the case.
