Trade War with Canada results in dramatic U.S. Economic Depression scenario

By Guy Cramer

The United States recently increased a 19% tariff and penalties to 31.88% on imported Canadian softwood lumber.  The U.S. wants to further increase this penalty. British Columbia residences propose retaliation by adding a 300% export tariff on Softwood lumber heading into the United States. Other proposals put forward to the Province of B.C. which controls B.C. Hydro is to limit or cut off Natural Gas and Hydroelectricity power to the U.S., which is expected to cause long term rolling blackouts down the entire west coast of the United States. Oil rich Alberta also affected by the softwood lumber penalties could join British Columbia to cease selling Oil to the U.S., as gasoline prices in U.S. would be expected to jump above $5.00 U.S. per gallon. Suffering U.S. airline industry would be expected to collapse, as jet fuel costs could double ticket prices. The domino effect on the U.S. economy would result in the worst economic collapse since the Depression.

Although the only part of this nightmare scenario that has been fulfilled so far is the 31.88% U.S. tariffs and penalties on Canadian softwood lumber, prominent Americans have warned the U.S. government, the resource rich western Canadian provinces backed into this corner could easily retaliate with Oil and Gas to collapse the already struggling U.S. economy. Canada currently supplies more oil to the U.S. than Saudi Arabia.

While the economy of Canada’s softwood lumber giant, the Province of British Columbia, plummets into economic freefall as it expects direct layoffs of over 30,000 before Christmas and possibly twice that many indirectly losing their jobs due to the increasing U.S. tariffs on the Province’s largest industry. Federal Canadian political leaders in Eastern Canada sit idle. Western Canadian voters overwhelmingly supported the opposition in the last few federal elections, the current Federal Liberals are returning the favour by providing little support for the dilemma in the West. Provincial governments in the Canadian west may be forced to act without federal backing in this trade war if only for economic preservation.

Canada may only have 1/10th the population of the U.S., however, Canada is America’s biggest trading partner and is essential not only to the energy requirements of the U.S. population, but the U.S. relies heavily on Canadian supplies of food, technology and manufacturing.

While the Eastern side of Canada may have the larger population and thus the deciding factor for the makeup of the Canadian Federal government, the Western provinces of Canada are rich in oil, gas, lumber, fresh water, minerals and metals. The strange relationship of Federal support of Eastern issues such as recent fisheries disputes, but lack of action for Western issues such as Softwood lumber, was largely expected in the West. Recent examples where the provincial government has retaliated with the Americans in trade issues include the Province of B.C. cutting off the U.S. Military from a torpedo test range, which took months for the Canadian Federal government to resolve.

So while the friendly relationship between the two countries appears untarnished by this current trade war, it should be noted that the western provinces have long had to deal with U.S. trade issues on their own.

A former American CEO, Denver-based Tom Stephens "I would remind U.S. policy-makers that without Canada's energy, they had better learn to speak Arabic and read by candlelight," Stephens former chief executive officer of the Canadian forest firm MacMillian-Bloedel (now owned by Oregon-based Weyerhaeuser) said in a widely reported speech earlier this year, referring to greater reliance on the Middle East if Canada retaliates by cutting supply.

The Arkansas-born Stephens continued, "If I were a Canadian, which I'm not, negotiating trade issues with the U.S., I wouldn't let that need for gas be separated from the issue of lumber, wheat, potatoes or any other commodity that the U.S. producers are trying to restrict,"

Stephens added that B.C. gas and power kept California's computers running during recent shortages. "Canada has its hand on the American lights switch".

Canada has taken up this same issue of Softwood tariffs in the past with the World Trade Organization and won every time. However it takes years to resolve these trade disputes and current tariffs by the U.S. are not just immediate but retroactive meaning the tariff applied to product sold months prior!

As petty as this trade war appears at this time, the U.S. is not in a position economically to flex its muscle, especially when the same people that you are punishing are the same people that you rely on to fill the energy gaps that the U.S. is unable to fully provide to its large population.

You can only poke a bear with a stick so many times before you discover that wasn’t a good idea.  

(I have been informed the following from a number credible sources within the Green house industry): Apparently, B.C. tomato producers have now been hit with a 58%+/- duty on shipments to the U.S. An owner of a green house operation states he can not understand why the media has said nothing about it? Local co-op producers have been told not to ship product to the distribution centre as they are full - they are being told to hang on to their tomatoes. The green house owner says that you can not simply hang on to the tomatoes too long as they will rot.

B.C. Forest Minister Mike de Jong commenting on the softwood duties "Someone should tell the American people that while their attention is understandably focused elsewhere in the world there is a very small group of bureaucrats and politicians and a few industrialists who are doing a hatchet job on their closest allies."

Update November 6, 2001: Did the Leader of Canada read our article?

The Vancouver Province (p A6) today reported that Prime Minister Jean Chretien is linking lumber with U.S. access to Canadian energy as the softwood lumber squabble worsens.

"I believe that if they want to have free trade in natural gas and oil, they should have free trade in wood too," Chretien said in Ottawa.

He continued, "If they were not to have oil and gas from Canada, they would need allot of wood to heat their homes." 

Reference Papers: 

Canada Urged To Use Electric Supplies To Tighten Trade Screws on U.S.

http://www.townhall.com/news/politics/200103/NAT20010314a.shtml

"The Vancouver Province" Nov. 6, 2001 (Pacific Press, Southham Publications, a CanWest company) P.A6

This material is Copyright © 2001, by Guy Cramer, All Rights Reserved.
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