New U.S. Tariff Called ‘Appalling’ : U.S., Canada Stand on Brink of a Trade War

Relations between the United States and Canada, normally the best of friends and each the other’s major trading partner, have dropped to their lowest point in years, and the two countries are on the verge of a trade war.

The change came suddenly with President Reagan’s decision last Thursday to impose an immediate 35% duty on imports from Canada of cedar roof shingles and siding. Reagan said that Canada’s 75% share of the market endangered the U.S. cedar industry.

Calls It ‘Appalling’

Prime Minister Brian Mulroney, who often boasts of his strong personal friendship with Reagan, termed the action “bizarre . . . appalling,” and charged the President with breaking a longstanding agreement to take no protectionist action against Canada.

“This American initiative is pure protectionism,” Mulroney said in a cable to Reagan, “the precise thing you and I pledged . . . we would seek to avoid.”

Mulroney referred to agreements reached in meetings over the last year and a half.

Mulroney has demanded compensation for the 4,000 Canadian workers whose jobs are affected by the tariff, and he has threatened to retaliate against U.S. exports unless the United States reconsiders.

The possibility of a trade war between the two countries--two-way trade amounts to $150 billion a year--comes only a week after they opened talks aimed at stabilizing and expanding their economic relationship.

“This unjustifiable action is all the more appalling in the context of freer trade negotiations between our two countries,” Mulroney told Reagan.

According to Canadian officials, relations between the two countries have not been damaged this much in 25 years.

“I know Reagan had trouble with (former Prime Minister Pierre Elliott) Trudeau’s independent foreign policy, but that was attitude,” one said. “This is the first time since (President Richard M.) Nixon that we are faced with a real and serious dispute.”

The official was referring to the 1971 imposition of a 10% American surtax on all imports from Canada, an action that outraged Canada and resulted in several anti-U.S. financial moves by Trudeau.

Domestic political considerations appear to be behind both Reagan’s decision and Mulroney’s fury, something the prime minister acknowledged Wednesday when he told the House of Commons that the President is under heavy protectionist pressure from Congress and U.S. industry.

The prime minister, for his part, has been under constant attack from his political opposition and many businesses for initiating the free-trade talks. There have been angry charges that Mulroney is sacrificing Canadian jobs and economic self-sufficiency on the altar of relations with Washington.

The prime minister seemed at first to agree with this view. He told the House on Friday: “I have tried to place Canadian-American relations on a friendly footing. Actions like this make it extremely difficult for anyone, including Canadians, to be friends with the Americans from time to time.”

Mulroney has since toned down his language in what Canadian officials say privately is the hope that the tariff decision will be reversed. If allowed to stand, it could all but destroy Canada’s $225-million-a-year cedar shingle business, most of it exports to the United States.

“Besides,” an External Affairs Ministry official said, “we don’t want to lose the free-trade talks and we don’t want a trade war. We couldn’t win.”

Mulroney said Wednesday that he will not suspend or call off the free-trade talks.

‘He’ll Have to Fight’

Still, the official said, “Mulroney can’t sit still. If the Americans won’t back off, he’ll have to fight back.”

Exactly what Mulroney has in mind has not gone beyond secret meetings of his Cabinet. External Affairs Ministry officials say the possibilities include imposing duties on U.S. products from the northwestern states near British Columbia, the province most affected by the U.S. tariff.

Joe Clark, the minister of external affairs, says Canada will prevent American woodworkers from importing raw cedar blocks to be made into shingles and shakes.

Another probable reaction would be the refusal to carry out a Mulroney promise to rewrite a law that limits profits by American drug makers, a measure that would deprive U.S. pharmaceutical firms of up to $200 million in revenue.

Retaliation Put Off

Despite the Canadian anger, Mulroney and Clark have put a brake on any immediate retaliatory action. Among other things, they are concerned that any precipitous move might spark a U.S. countermove against the Canadian softwood industry, already under attack by U.1395531875south of the border. Canada sold $2.6 billion in softwoods in the United States last year.

In place of the immediate action promised by Mulroney, he said Wednesday, nothing will be done until the Reagan Administration answers the compensation request and until Clark talks with Secretary of State George P. Shultz on Friday in Halifax, where both are attending a meeting of foreign ministers of the North Atlantic Treaty Organization.

Initial reaction by American officials was negative. An official at the U.S. Trade Office in Washington said by telephone: “There is no reason under (international trade regulations) to pay compensation, and there is no precedent to do so. In fact, it would be a dangerous precedent.”