U.S. lumber industry alleges Canadian softwood producers receiving climate subsidies

A group led by the U.S. Lumber Coalition has fired a new salvo in a long-running trade dispute, alleging that programs designed to help combat climate change are unfair subsidies to Canadian softwood producers.

“We hereby submit an allegation of additional subsidies available to Canadian producers of softwood lumber products,” the group said in a 56-page document filed recently with the U.S. Department of Commerce.

New subsidies come from four federal programs in Canada geared toward helping companies meet climate goals, according to the influential U.S. industry group COALITION, which stands for Committee Overseeing Action for Lumber International Trade Investigations Or Negotiations.

COALITION argues that funding related to reducing Canada’s emissions of greenhouse gases should be added to future U.S. determinations for setting countervailing duty rates.

The U.S. lumber lobby is complaining about what it deems to be climate subsidies in two initiatives administered by Natural Resources Canada – the Clean Growth Program and the Green Freight Assessment Program. Also being targeted are federal measures such as funding for high-growth businesses in Western Canada (Western Business Scale-up and Productivity Program) and favourable tax treatment to encourage the use of renewable energy sources (Tax Savings for Industry).

Brian Donovan: Why lumber price trends are so hard to nail down

The Canadian government disagrees with the U.S. characterization of climate subsidies, adding that the tax treatment is an accelerated capital cost allowance for any industry and not a separate program.

On the provincial side, COALITION submits that British Columbia is providing new subsidies, including through two programs under CleanBC, while New Brunswick oversees two climate initiatives that help industries such as forestry.

The Commerce Department said it is “initiating an investigation of subsidy programs,” starting by sending out questionnaires to government and industry officials in Canada.

COALITION, which includes Seattle-based Weyerhaeuser Co., said it’s important for the Commerce Department to scrutinize the new subsidy allegations. “The department must take the necessary steps to verify usage of the alleged subsidies and the actual benefit conferred, whether measurable or not, by soliciting this information from the respondents and governments,” the U.S. lumber group said in a separate 16-page document.

U.S. authorities maintain that the stumpage fees Canadian companies pay to provincial governments to cut trees on Crown land are too low, which amounts to subsidies. By contrast, U.S. lumber producers buy their timber mostly from private owners of forests.

The Commerce Department has imposed countervailing duties as penalties in response to what U.S. authorities view to be subsidized Canadian lumber. As well, the Commerce Department has levied anti-dumping duties, arising from the U.S. contention that Canadian producers sell softwood at below market value.

Besides targeting what it sees as climate subsidies, COALITION criticized a tax exemption for Canadian exporters and said a federal wage program that supports hiring Indigenous youth in Canada should be factored into calculations for U.S. duties.

The Canadian respondents counter that COALITION vastly overstated its case, for example, describing subsidies that allegedly flowed to several Canadian producers that never received any such funding.

The Canadian government, five provinces and Canada’s forestry industry told the Commerce Department that no unfair subsidies are being given specifically to Canadian softwood producers to fight climate change.

“The department should ensure that its approach does not undermine the Biden administration’s stated policies on combatting climate change, reducing greenhouse gases and protecting the environment,” said a 52-page document filed by lawyers for the Canadian government and other parties based in Canada. “Programs designed to achieve a better environment and avert a climate crisis cannot be considered specific.”

For example, British Columbia’s measures to encourage the use of zero-emission vehicles are available to a wide range of industries and do not specifically target the lumber sector, the Canadian document said.

“If the department were to countervail any of these programs in this review, the department would be violating the applicable countervailing duty statute and regulations, and would be at odds with the executive order of the President directing trade policy to address the global climate crisis,” lawyers for the Canadian government and other parties from Canada said in their filing.

The 2006 Canada-U.S. softwood agreement expired in October, 2015, with no replacement.

The protracted trade fight is in its fifth round, dating back 40 years. The U.S. International Trade Commission ruled in November, 1982, that Canadian softwood shipments were causing economic injury to producers in the United States, triggering the trade war.

In the latest round, the Commerce Department began imposing duties on Canadian lumber in April, 2017. The countervailing and anti-dumping duty rates have fluctuated since then.

Current combined U.S. tariffs total 8.59 per cent, consisting of 3.83 per cent in countervailing duties and 4.76 per cent in anti-dumping levies, imposed against most Canadian lumber producers sending shipments south of the border.

Four Canadian producers pay different rates from most others. Montreal-based Resolute Forest Products Ltd.’s RFP-T +0.87%increase combined tariff rate of 14.86 per cent is the highest among Canadian producers, followed by Saint John-based J.D. Irving Ltd. at 14 per cent.

West Fraser Timber Co. Ltd. WFG-T -3.10%decrease pays a combined tariff of 8.25 per cent while Canfor Corp.’s duties total 5.87 per cent. West Fraser and Canfor are based in Vancouver.

Last month, the Canadian government filed a challenge to the latest duty rates through a dispute-settlement process under Chapter 10 of the Canada-U.S.-Mexico Agreement.

Cash prices – what sawmills charge wholesalers – were at US$520 last week for 1,000 board feet of two-by-fours made from Western spruce, pine and fir (SPF), according to Madison’s Lumber Reporter, a Vancouver-based industry newsletter. That pricing level is 7 per cent higher compared with September, 2021, but two-thirds lower than record highs posted in May, 2021.

In this fifth round of the trade battle, the Commerce Department said earlier this year that it had initiated a fourth administrative review, scrutinizing data from lumber markets in 2021. Lumber traded mostly between US$445 and US$1,620 for 1,000 board feet of Western SPF during a period of wild swings in prices in 2021.

Dow tumbles 1,200 points for worst day since June 2020 after hot inflation report

Stocks fell sharply on Tuesday after a key August inflation report came in hotter than expected, hurting investor optimism for cooling prices and a less aggressive Federal Reserve.

The Dow Jones Industrial Average slid 1,276.37 points, or 3.94%, to close at 31,104.97. The S&P 500 dropped 4.32% to 3,932.69, and the Nasdaq Composite sank 5.16% to end the day at 11,633.57.

Just five stocks in the S&P 500 finished in positive territory. Tech stocks were hit particularly hard, with Facebook-parent Meta skidding 9.4% and chip giant Nvidia shedding 9.5%.

The drop erased nearly all of the recent rally for stocks, pulling the S&P 500 back toward its Sept. 6 close of 3,908 and causing some traders to glance back at mid-June, when the index fell below 3,700.

“I think we may even go back and retest the June lows,” UBS director of floor operations Art Cashin said Tuesday on CNBC’s “Squawk on the Street.”

“Certainly the 3900 is just so tempting, and you’re pulling back below the 50-day moving average here. It’s very much about the technicals. It’s not so much that the one number made the economy go topsy-turvy. It meant a lot of guys who were making preliminary favorable bets got caught off base,” he said.

The August consumer price index report showed a higher-than-expected reading for inflation. Headline inflation rose 0.1% month over month, even with falling gas prices. Core inflation rose 0.6% month over month. On a year-over-year basis, inflation was 8.3%.

Economists surveyed by Dow Jones had been expecting a decline of 0.1% for overall inflation, with a rise of 0.3% for core inflation.

The report is one of the last the Fed will see ahead of their Sept. 20-21 meeting, where the central bank is expected to deliver its third consecutive 0.75 percentage point interest rate hike to tamp down inflation. The unexpectedly high August report could lead the Fed to continue its aggressive hikes longer than some investors anticipated.

The moves comes after four straight positive sessions for U.S. stocks, which were bolstered in part by the belief of many investors that inflation had already peaked.

“The CPI report was an unequivocal negative for equity markets. The hotter than expected report means we will get continued pressure from Fed policy via rate hikes,” said Matt Peron, director of research at Janus Henderson Investors. “It also pushes back any ‘Fed pivot’ that the markets were hopeful for in the near term.”

The sell-off was especially painful in high-growth areas of the market. Cloudflare fell more than 10%, while Unity Software sank about 13.4%. Shares of direct-to-consumer auto retailer Carvana slid 12.9%.

Spreads: A weaker recession clue in Canada

The Bank of Canada boosted its policy interest rate to 3.25 per cent last week in an effort to tame inflation. The idea being that higher rates will dissuade people from borrowing and thereby put a damper on an overheated economy.

The central bank has a difficult task because inflation is running at 7.6 per cent based on the latest year-over-year reading from July. The bank’s preferred measures of core inflation were also elevated, at between 5 per cent and 5.5 per cent.

Should inflation persist at similar rate, rather than decline to more moderate levels, as the bank hopes, monetary policy would still be expansive because borrowers get a free lunch thanks to inflation. The bank says, “given the outlook for inflation, we continue to judge that the policy interest rate will need to rise further.”

The bank’s job is made more difficult because the Canadian government bond yield curve recently inverted, with yields offered by short-term bonds now exceeding those on long-term bonds.

That’s worrisome because negative spreads (the difference between long-term and short-term yields) in the United States have heralded recessions almost like clockwork since the 1970s. The relationship is something Duke University finance professor Campbell Harvey pointed out in his 1986 PhD dissertation, and negative spreads have continued to presage economic downturns in the U.S. since then.

The first accompanying graph shows year-over-year growth in real gross domestic product (GDP) in the U.S. along with the spread between 10-year and three-month U.S. Treasury yields. (The graphs herein are based on calculations using data retrieved from the FRED service of the Federal Reserve Bank of St. Louis, with some supplemental data from the Bank of Canada. GDP growth is based on quarterly figures while the spreads use monthly data.)

You can see that spreads fall near, or below, zero roughly a year before GDP stalls.

I use GDP growth as my proxy for recessions rather than official data from the National Bureau of Economic Research to be able to apply the same measure in Canada. But, to my eye, GDP shrinkage does a pretty good job of flagging the major economic downturns of the last few decades.

You’d be right to quibble about the idea that negative spreads cause recessions in all cases. For instance, it is preposterous to think they were behind the 2020 recession, which was prompted by the pandemic and its related restrictions. (While an economic slowdown might have occurred in a world that didn’t suffer from the COVID-19 pandemic, we can’t turn back time to test the matter.)

The spread between 10-year and three-month U.S. Treasury bond yields stands at 0.20 of a percentage point on Sept. 7, according to data from the U.S. Treasury Department. While the spread has yet to go negative, it is low enough to be worrisome because the U.S. Federal Reserve is expected to follow the Bank of Canada with a boost to its benchmark rate later this month of, perhaps, 0.75 of a percentage point.

While the linkage between negative spreads and recessions appears to be strong in the U.S., it has been weaker in our home and native land.

The second graph shows the history of the spread between 10-year Government of Canada bond yields and three-month yields, along with year-over-year real Canadian GDP growth.

I’ll start with the good news and a touch of confirmation bias. Many significant slowdowns have occurred in Canada roughly a year after the yield spread turned negative. For instance, the hard times of 1982, 1990 and 2008 were all heralded by inverted yield curves.

On the other hand, it’s easy to spot several notable whiffs. For instance, spreads predicted recessions in the late 1990s and early 2000s, but they failed to materialize. Hard times also occurred without accompanying negative spreads, such as the 2015 downturn that was fuelled by the collapse of the oil patch.

It’s not clear why spreads failed to be a reliable predictor of recessions in Canada. It might be due to our smaller economy, the influence of our giant neighbour to the south, the significance of our energy and resource sectors, or a combination of these and other factors.

But the recent U.S. experience might also have arisen more by chance than cause and effect. There have only been a handful of economic downturns in recent times and it’s easy to imagine that recessions might arise in other ways. After all, a prime example is provided by the recession of 2020.

Nonetheless, I think it’s unwise to ignore the actions of the central banks when they are trying to cool the economy by aggressively boosting short-term interest rates. After all, such actions have led to some of the most painful recessions in the past, and cracks are already starting to appear in the Canadian real estate market. In my view, we’ll be fortunate to avoid a serious economic slowdown over the next year or so.

Inflation rose 0.1% in August even with sharp drop in gas prices

• The consumer price index increased 0.1% in August. Excluding food and energy, the inflation gauge rose 0.6%, both higher than expected.
• Costs were driven by increases in food, shelter and medical care services, offsetting a sharp decline in gasoline prices.
• Real average hourly earnings adjusted for inflation rose 0.2% for the month. However, they remained down 2.8% from a year ago.

https://www.cnbc.com/2022/09/13/inflation-rose-0point1percent-in-august-even-with-sharp-drop-in-gas-prices.html

Justin Trudeau attacks Pierre Poilievre as irresponsible in speech to Liberal caucus

Prime Minister Justin Trudeau launched a forceful attack of Pierre Poilievre Monday, describing the new Conservative Leader as an irresponsible politician who promotes reckless economic ideas.

In his first public comments since Mr. Poilievre’s decisive Saturday night leadership victory, Mr. Trudeau laid out his criticisms in an outdoor speech to the national Liberal caucus, which is gathering in St. Andrews, New Brunswick, for three days of meetings ahead of Parliament’s return.

“What Canadians need is responsible leadership,” said Mr. Trudeau. “Buzzwords, dog whistles and careless attacks don’t add up to a plan for Canadians. Attacking the institutions that make our society fair, safe and free is not responsible leadership. Telling people they can opt out of inflation by investing their savings in volatile cryptocurrencies is not responsible leadership. By the way, anyone who followed that advice would have seen their life savings destroyed.”

Mr. Trudeau was referencing comments Mr. Poilievre made in March at a leadership campaign stop, where he said cryptocurrencies “let Canadians opt-out of inflation with the ability to opt-in to cryptocurrencies.”

The value of bitcoin, the most popular form of cryptocurrency, has dropped by more than 50 per cent since Mr. Poilievre made those comments.

Mr. Trudeau spoke after Mr. Poilievre made a public speech to the Conservative caucus in Ottawa in which he urged the Liberals to pledge not to raise taxes. The Prime Minister did not directly address that request and he did not take questions from reporters after his speech.

Mr. Trudeau congratulated Mr. Poilievre on his victory and said Liberals are open to working with other parties in Parliament.

“But this doesn’t mean that we’re not going to be calling out highly questionable, reckless economic ideas,” he said.

Liberal MPs have been meeting for informal chats with various cabinet ministers and in smaller groups such as regional caucuses, as well as the full national caucus.

The Liberal caucus gathering is taking place just days before the House of Commons resumes sitting after the summer recess. Various ministers this week have signalled that the government’s fall priorities will include affordability measures aimed at lower-income Canadians, gun-control legislation and a suite of bills dealing with new regulations for the internet in areas such as promoting Canadian content and curbing hate speech.

Even though the Liberals and the NDP voted earlier this year to extend hybrid sittings adopted due to the pandemic that allow MPs to participate virtually in House of Commons debates and votes, the full Liberal caucus meetings this week are occurring without virtual options. Previous Liberal caucus meetings during the COVID-19 pandemic have included virtual participation.

While speaking with reporters, Government House Leader Mark Holland was asked why his government supports the continuation of a virtual Commons while not offering that option for its own caucus meetings.

Mr. Holland said the House of Commons committee on procedure and House affairs will be holding a study in the fall to review the hybrid system to determine what changes should be made. He said he’ll be bringing forward his own recommendations.

The Official Opposition Conservatives have been very critical of the hybrid Parliament, saying it reduces accountability by allowing ministers to appear virtually in the House of Commons or as a committee witness.

“I spent a lot of time in opposition. I am incredibly sympathetic to making sure that the mechanisms of accountability are there,” said Mr. Holland. “Now that we’re in – what I hope – is moving out of this pandemic and moving to brighter, clearer days, let’s take an opportunity to reflect on what worked and what didn’t work in this experiment.”

Mr. Holland and other Liberal MPs delivered a common criticism of Mr. Poilievre’s political style, accusing him of proposing “simplistic” solutions to complex problems.

Thunder Bay-Rainy River MP Marcus Powlowski said he expects Mr. Poilievre’s support of the freedom convoy protests will limit his political appeal.

“I think a lot of Canadians are going to see him on the far right. I think a lot of his opinions are not, but he’s also catered to the far right – the kind of people that park their trucks in downtown Ottawa, the freedom convoy and that kind of people,” he said. “And I think the majority of Canadians, the many quiet Canadians, don’t agree with that.”

Dollarama Reports $193.5M Q2 Profit, Sales Up 18.2 Per Cent From Year Ago

 Dollarama Inc. reported a second-quarter profit of $193.5 million, up from $146.2 million in the same quarter last year, as sales rose 18.2 per cent.

The discount retailer says the profit amounted to 66 cents per diluted share for the quarter ended July 31 compared with a profit of 48 cents per diluted share a year ago.

Sales for the three-month period totalled $1.22 billion, up from $1.03 billion a year earlier.

Comparable store sales, a key metric for retailers, gained 13.2 per cent as the number of transactions rose 20.2 per cent, but the average transaction size fell 5.8 per cent.

In its outlook, Dollarama says it expects to continue to benefit from strong demand as shoppers look to deal with inflation.

The retailer raised its comparable store sales growth assumption for its 2023 financial year to a range of 6.5 to 7.5 per cent compared with earlier expectations for between 4.0 and 5.0 per cent.

This report by The Canadian Press was first published Sept. 9, 2022.

Fed’s Waller sees ‘significant’ rate hike this month, backs data-dependent approach

• Fed Governor Christopher Waller on Friday made comments indicating he could back another 0.75 percentage point interest rate increase later this month.
• He further suggested the Fed get away from its practice of providing “forward guidance” on what its future path would be.

https://www.cnbc.com/2022/09/09/feds-waller-sees-significant-rate-hike-this-month-backs-data-dependent-approach.html

U.S. only days away until an ‘absolute explosion’ on inflation, says pollster Frank Luntz

https://www.cnbc.com/video/2022/06/17/u-s-only-days-away-until-an-absolute-explosion-on-inflation-says-pollster-frank-luntz.html?&recirc=taboolainternal

Farmland Inc.

Robert Andjelic is Canada’s largest farmland owner. He sees huge potential for the agriculture sector — if Canada doesn’t mess up a once-in-a-century opportunity

https://www.theglobeandmail.com/business/article-farmland-ownership-canada-andjelic/