There’s a term called “zeroing” at the heart of this World Trade Organization decision that supports President Trump, Secretary Ross and USTR Lighthizer.

When an industry product like Canadian softwood lumber is shipped into the U.S. for sale at a lower price than exists in Canada, the U.S. Commerce department calls that “dumping“. If the Canadian product is the same or higher in the U.S. as it is in Canada there is no dumping. No dumping is a “zero” or normal price differential; hence “zeroing”.

The Canadian government is subsidizing their lumber industry by allowing tree removal from federal land at discounted rates so long as the lumber is exported. This made softwood lumber cheaper in the U.S. than in Canada and set up the dumping issue.

[NOTE: This is the same issue with Steel and Aluminum from China]

U.S. lumber mills were going out of business because Canada was dumping subsidized product into the U.S. market at a discounted rate. As a consequence, in 2017 Commerce Secretary Wilbur Ross instituted a 20% tariff on Canadian lumber to protect the U.S. lumber industry. The tariff is a countervailing duty to offset the Canadian subsidy. ie. “zeroing”.

With the 20% tariff, Canadian lumber sold into the U.S. was the same price as Canadian lumber sold in Canada. This allows U.S. lumber mills to compete for U.S. market business on an equal basis.

Instead of removing their federal lumber subsidy (which would have removed the tariff) the Canadian government, via Justin Trudeau, went bananas and sued the U.S. at the World Trade Organization (WTO). Trudeau was counting on prior disputes where the WTO did not side with the U.S. position on the calculations for industry “zeroing”.

However, in a departure from prior WTO opinion; and conceding to the obvious validity of the math while faced with a U.S. president who would not relent; the WTO agreed with President Trump, Secretary Ross and Ambassador Lighthizer and affirmed the 20% tariff as a valid countervailing duty.

The softwood lumber tariff was upheld by the WTO and Canada has lost its case.

This is a major victory for the U.S. with considerable ramifications for all further “anti-dumping” tariffs and/or countervailing duties.

(Reuters) […] U.S. Trade Representative Robert Lighthizer welcomed the ruling by a WTO dispute panel, which he said showed the “erroneous”, “unpersuasive” and “flawed reasoning” of Appellate Body rulings in the past. “The United States commends this panel for doing its own interpretive analysis, and for having the courage to stand up to the undue pressure that the Appellate Body has been putting on panels for many years,” Lighthizer said in a statement. He said the WTO rules did not prohibit zeroing, and the United States would never have signed up to WTO rules that did prohibit the practice. “WTO Appellate Body reports to the contrary are wrong, and reflect over-reaching by that body,” he said. Canada launched the WTO dispute in November 2017, saying it would forcefully defend its lumber industry against “unfair, unwarranted and deeply troubling” U.S. tariffs. The U.S. Commerce Department had accused Canada of unfairly subsidizing and dumping softwood lumber, which is commonly used in the construction of homes. Its duties affected about $5.66 billion worth of imports. There was no immediate reaction from Canada’s international trade ministry, which could appeal against the ruling. (more)

This ruling is especially important as USTR Lighthizer engages with China on the current trade discussion. Prior WTO rulings essentially allowed China to subsidize their state-run industries/companies and undermine free-market prices. Globally this put China at a manufacturing advantage; however, moving forward, the U.S. can apply the “zeroing” analysis and offset the Chinese state subsidy with countervailing duties.

In essence this WTO ruling forces the financial principles underlying a free and fair market into the global economy. If China wants to sell industry products into the U.S. they can no long manipulate their price to export at a lower cost than exists in China.

President Trump has a simple economic platform: “Buy American and Hire American“; toward that goal all economic and fiscal policies are now directed to assist U.S. manufacturing companies and retain U.S. workers. This includes free, fair and reciprocal trade agreements. Period.

Once upon a time, there was an old man who used to go to the ocean to do his writing. He had a habit of walking on the beach every morning before he began his work. Early one morning, he was walking along the shore after a big storm had passed and found the vast beach littered with starfish as far as the eye could see, stretching in both directions. Off in the distance, the old man noticed a small boy approaching. As the boy walked, he paused every so often and as he grew closer, the man could see that he was occasionally bending down to pick up an object and throw it into the sea. The boy came closer still and the man called out, “Good morning! May I ask what it is that you are doing?” The young boy paused, looked up, and replied “Throwing starfish into the ocean. The tide has washed them up onto the beach and they can’t return to the sea by themselves,” the youth replied. “When the sun gets high, they will die, unless I throw them back into the water.” The old man replied, “But there must be tens of thousands of starfish on this beach. I’m afraid you won’t really be able to make much of a difference.” The boy bent down, picked up yet another starfish and threw it as far as he could into the ocean. Then he turned, smiled and said, “It made a difference to that one!”