President Donald Trump is fed up with cheap Canadian softwood-lumber imports, subsidized by provincial governments, and he is ready to slap the northern neighbor with a 20 percent tariff. It’s part of Trump’s latest efforts to force a more “reciprocal” relationship with trade partners.
But does that approach include the border-adjustment tax? Bloomberg News reported on Friday that Trump won’t include a border-adjustment tax — a duty on imports, a version of which most other nations have — in a proposed tax reform package expected to be unveiled Wednesday. Trump, in response to a question from LifeZette during a meeting with reporters in the Roosevelt Room, said he is still open to the border-adjustment tax, but suggested he will examine the policy as part of trade deals, not an initial round of tax reform.
Trump’s ambiguity was not a surprise. Earlier in the day, in his regular briefing with reporters, White House press secretary Sean Spicer said the White House is waiting until Wednesday to share tax-reform details. It’s likely a sign that Trump won’t want to entangle large-scale tax reform with the border-adjustment tax, which deeply divides Republican lawmakers.
But the delay of a border-adjustment tax push does not mean Trump will not take swift action to encourage more trade equity with regional economic partners. As for Canada, Trump is fed up and ready to act. Trump surprised a gathering of journalists from conservative-leaning outlets at the White House on Monday when he said he would place a 20 percent tariff on softwood-lumber imports from Canada.
Canada’s softwood-lumber has long been a thorn in the side of U.S. trade officials. It was a major point of contention in the original negotiations for a U.S.-Canada free-trade treaty in 1989. That treaty was expanded to Mexico in 1993 with the North American Free Trade Agreement (NAFTA). In March 2002, President George W. Bush slapped Canada with 29 percent tariffs on Canadian lumber for unfairly subsidizing the lumber exports.
The tariffs won’t be automatic. Wilbur Ross, secretary of the Commerce Department, said a dispute-resolution panel, mandated by NAFTA, will decide if U.S. law is being properly applied. Ross, who walked into the Roosevelt Room with Trump and Spicer, noted three of the five panelists are Canadians.
“Canada has treated us very unfairly,” said Trump, threatening to also punish Canadian dairy producers for unfairly undercutting Wisconsin farmers. Trump said the changes mean U.S. lumber producers will have a better deal.
“We can do our own lumber,” said Trump.
Trump was less specific about the border-adjustment tax proposal floated by House Speaker Paul Ryan and Rep. Kevin Brady (R-Texas), the powerful chairman of the Ways and Means Committee. But he did say the border-adjustment tax has been misunderstood, mostly because of its name.
“The word I like is reciprocal,” said Trump.
The tax would allow cuts in other areas, meaning it is “revenue-neutral.” It would also accomplish some of what Trump promised to do in the 2016 campaign — to reform trade policies.
“Generally speaking, I am in favor of it,” said Kevin L. Kearns, president of the U.S. Business and Industry Council. “We need to do something to level the playing field, since 150 of our trading partners have value-added taxes.”
Kearns said American exports get the tax added when they arrive in other nations.
Using Germany as an example, such taxes are used in most European nations. The value-added taxes are extracted from German manufacturers. But if the German manufacturers export the goods, the manufacturers get refunds, Kearns said. That gives Germans incentive to manufacture within Germany.
But the border-adjustment tax is vilified by retailers, who sell many imported goods. On Monday morning, the Koch-backed Freedom Partners held a teleconference to denounce the tax. A border-adjustment tax will hurt retailers such as Best Buy and Target, said Freedom Partners officials. Some Republicans are also afraid of border-adjustment taxes because they claim they are hidden taxes, and can be adjusted at will, said Kearns, who dismissed those claims.
Kearns told LifeZette he is worried about Trump tying trade to foreign policy “deal-making” with nations such as China.
“Let’s take a poll of Trump supporters and see who wants to lose their job to China because of North Korea,” said Kearns.