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Trump's latest trade tactic: Blame Canada

  • President Donald Trump moved to slap tariffs on Canadian lumber, stoking a long-smoldering trade dispute with America's second-largest trading partner.
  • The move follows complaints from U.S. dairy farmers about a recent decision by Canada to change the way tariffs apply to some milk products.
A scene from the "South Park" movie.
Source: Warner Bros. | YouTube
A scene from the "South Park" movie.

Looks like it's time to blame Canada.

After repeated campaign promises to "get tough on trade," President Donald Trump just moved to slap a roughly 20 percent tariff on softwood lumber entering the United States from Canada, reviving a long-smoldering trade dispute between the U.S. and its second-largest trading partner.

The move follows complaints from U.S. dairy farmers about a recent decision by the Canadian dairy industry to change pricing categories on certain milk products. The action has had the effect of cutting prices Canadian cheese makers pay for dairy ingredients.

Trump has called the move "a disgrace" that's hurting U.S. producers in dairy states like Wisconsin.

"It has been a bad week for U.S.-Canada trade relations," said Commerce Secretary Wilbur Ross in a statement. "This is not our idea of a properly functioning free trade agreement."

Canadian officials rejected the White House's assertions that its lumber industry is unfairly subsidized and urged the Trump administration to negotiate a settlement.

"You need our lumber to build your homes," Canada's minister of foreign affairs, Chrystia Freeland, told CNBC on Tuesday, noting that lumber prices have been rising. "If the market was being flooded by cheap Canadian lumber, you wouldn't see that happening right now."

The U.S. runs a trade deficit in lumber with Canada, importing more wood than it sends across the northern border. U.S. producers complain that their Canadian competitors enjoy an unfair advantage by harvesting timber more cheaply on federally owned land, while American timber is largely grown on private land.

The trade dispute between lumber producers in Canada and the U.S. dates back to the Reagan administration, when a tariff on wooden shakes and shingles sparked a retaliation from Ottawa in the form of higher duties on a variety of U.S. products, including books, computers, semiconductors and even Christmas trees.

That trade skirmish helped promote the idea of a broader North American Free Trade Agreement, which was signed by President George H.W. Bush in 1992 and took effect in 1994. Trump has branded NAFTA "a disaster" for American workers, vowing to renegotiate the three-way trade treaty between the U.S., Canada and Mexico.

The dispute over dairy products stems from a new pricing agreement with Canadian farmers that slashed the price of the milk ingredients used to make cheese and yogurt. U.S. dairy farmers say the new accord has cost Wisconsin and New York companies millions of dollars.

Wisconsin is the largest dairy producer in the U.S. and runs the biggest trade surplus in dairy products with Canada.

While this week's trade skirmish covers a relatively small piece of overall U.S. trade, a wider dispute could create headwinds for the economy and raise prices for American consumers.

The impact would be felt unevenly from one part of the country to another, with states along the northern border most heavily affected.

Watch: Ross says Canada needs to play by the rules