Few trade options when countries don't play fair

Updated 7/5/2018 12:07 PM

Thank you for printing the June 23 story on the tariff issue with Canada. It is the simplest example of how convoluted international trade has become. The U.S. has imposed a 30 percent tariff on newspaper quality paper. Why? Because Canada subsidizes that industry by about 30 percent. But why would Canada need to subsidize that industry when they control vast acres of timber as much as 10 times the U.S. harvestable timber? Now this is where the complexity begins.

You see, workers and plants are paid in Canadian dollars but when sold into the U.S., they are paid in U.S. dollars. This exchange rate process is really what creates the issue. Twenty years ago, the Canadian dollar was worth about 50 percent of the U.S. dollar but today has strengthened to 75 percent of the U.S. dollar. This is why the Canadian government subsidizes the timber industry.

All industries within a country do not go through the same expansions and as a result, some industries can fall and become noncompetitive globally. Canadian currency is freely traded; however, China's currency is not. The Yuan 30 years ago was worth 25 percent of the U.S. dollar. Today it is worth about 16 percent. Think about that. In that period, the China economy has grown to become the second largest next to the U.S. and yet the currency has weakened. That is fundamentally backward, but it is out of global control, because the China currency is not traded.

I worked with the federal government for many years on this issue with Japan, Taiwan, South Korea and Singapore and all came into fair exchange rate mode. I am opposed to tariffs in general, but I must admit if the countries don't play fair, there are not many options. Imposing subsidies to protect industries in the end is short-sighted.

Richard Francke


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