Friday, April 28, 2006

A Softwood Lumber Dispute Heresy

Between April, 1999 and April, 2001, the 2 year period immediately preceding the instigation of the latest softwood lumber dispute, the value of the Canadian dollar against the US dollar ranged between a high of $.69 and a low of $.63.

Effectively this meant that a US based purchaser of Canadian softwood was receiving between $1.45 and $1.57 worth of lumber for every $1.00 spent.

If those same US lumber buyers chose to buy US produced lumber, the dollar they spent bought them a dollar’s worth of lumber.

So why would they buy the US lumber?

This hurt US lumber producers as can be well imagined.

But trying to make an effective complaint based on the vagaries of international exchange rates was a non-starter.

Still, they had to find a way.

They did. They fell back on the old tried and true subsidy complaint.

Historically this complaint has been struck down on many occasions but it’s always proven to be playable given the confusing differences between the two systems employed by the respective countries.

It worked.

They got relief from the exchange rate under the guise of a trade complaint.

And now?

Now, and for the foreseeable future, the US government is content to let the US dollar devalue as part of their attempt to address their enormous trade deficit.

So while today a US lumber buyer spending one US dollar is receiving added value of 11 cents, next month or next year that 11 cents could well become 8 cents, 5 cents or even nothing.

That’s an acceptable differential to the US lumber producers.

Thus they’re willing to drop their complaint about subsidies.

Told you it was heresy.

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