President Trump on April 20 said Canada's trade practices on dairy, lumber, and energy are unfair to the United States. "We're going to have to get to the negotiating table with Canada very, very quickly," Trump said. (The Washington Post)

The Trump administration announced on Monday that it is planning to impose a roughly 20 percent tariff on softwood lumber imported from Canada, a new escalation of trade tensions with America's northern neighbor.

Commerce Secretary Wilbur Ross said in an interview that his department had reached a preliminary decision to impose the tax, the administration's first major trade action against Canada. Ross portrayed the action as a tough measure to punish Canada after President Trump declared last week that “we can’t let Canada or anybody else take advantage and do what they did to our workers and to our farmers.”

“What we are doing is dealing with another bad act on the part of the Canadians,” Ross said.

The tension between the United States and Canada is only expected to worsen. Trump, in a Twitter post on Tuesday morning, suggested there was more to come, in part because of recent steps by Canada to make it harder for U.S. firms to import certain dairy products.

The Obama administration began the review of trade in softwood lumber last year out of concern that Canada was subsidizing its wood industry in a way that hurt U.S. rivals. The decision to impose what are known as “countervailing duties” in retaliation for Canada's wood subsidies, which will be announced Tuesday, is subject to a final review by the International Trade Commission, an independent federal agency that advises the government on trade policy.

The decision, however, allows U.S. Customs and Border Protection to begin collecting the funds from Canadian importers immediately. Five Canadian companies were a part of the investigation, and the United States will seek to collect money from four of them retroactively for actions taken in the past 90 days, Ross said.

Ross said this could amount to $1 billion in new tariffs, as well as $250 million in retroactive collections. All other Canadian softwood lumber companies will face the same tariff of 19.88 percent going forward.

Softwood lumber is a major export of Canada, which sold $5.8 billion in lumber to the United States last year, giving it about 31.5 percent of the U.S. market. It's the fourth largest export from Canada to the United States after oil, gas and cars.

After spending much of his presidential campaign attacking China and Mexico for their trade practices, Trump has shifted his ire toward Canada in the past week.

Trump blasted Canada’s recent decision to change its pricing policy for certain dairy products, a move he said was “very, very unfair” to the U.S. dairy industry. Ross said that Trump saw how hard this was hitting U.S. farmers during a recent trip to Wisconsin and was moved by their reaction. But Ross also added that the softwood lumber action was decided on its own “merits.”

Canadian Minister of Natural Resources James Gordon Carr says the punitive tariffs "will negatively affect people's jobs on both sides of the border." (Reuters)

The ruling is the latest salvo in a decades-long battle between Canadian and American lumber producers. U.S. lumber producers, who are mostly based in the Northwest, have long complained that Canada unfairly subsidizes its lumber by selling wood from government land at low rates to Canadian lumber producers, leading to a loss of jobs in the United States.

The Canadians have argued that, despite decades of investigations and litigation, U.S. claims about Canada’s unfair practices in the lumber trade have not stood up to scrutiny at the World Trade Organization.

Canada’s minister of natural resources and minister of foreign affairs jointly issued a statement Monday calling the U.S. accusations against Canadian lumber “baseless and unfounded.”

“The Government of Canada will vigorously defend the interests of the Canadian softwood lumber industry, including through litigation. … We have prevailed in the past and we will do so again,” the statement said.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, predicted that the dispute would not escalate into something much bigger.

“I don’t think it will be a trade war with Canada,” Bown said. “This is an irritant that is always there between these two countries, and Canada knows that.”

Jeffrey Schott, a former treasury official and trade negotiator, said the tariff would likely translate into higher costs for U.S. consumers.

“This will put upward pressure on prices for the main consumer of softwood lumber, and that would be the housing industry. So the cost of housing will go up to some extent,” he said.

Correction: An earlier version of this article said Canada imposed an import tax on ultra-filtered milk. This is incorrect. Canada changed its pricing policies but did not impose a new import tax.