CANADA’S DOLLAR RISE

A tentative agreement last month finally may have settled the long-running softwood lumber dispute between the United States. The deal to end the 25-year fight was possible, in part, because of the soaring value of the Canadian vs. the U.S. dollar.

The record high value of the “loonie” has other benefits to Maine, as more Canadian shoppers are expected to come here to shop and buy gas. But it also means Mainers and other Americans are paying more for petroleum products, seafood and other products from Canada.

The Canadian dollar is trading around 91 cents to the U.S. dollar, the highest since 1978. The rise of the loonie, so-called because of the loon on the golden coin, is due to rising commodity prices and the continued drop in the value of the U.S. dollar against international currencies. Oil and gold, which Canada has a lot of, are at record high prices.

This means it takes more Canadian dollars to buy these commodities from Canada. This drives up demand for Canadian dollars, raising their value.

At the same time, demand for U.S. dollars has been falling for years due to international concerns about the growing American deficit. As a result, the value of the U.S. dollar vs. currencies such as the euro and Canadian dollar has dropped.

This is one reason that U.S. and Canadian negotiators were able to reach a tentative agreement to end the decades-long dispute over timber imports. The United States had long charged that Canada unfairly subsidized the production of softwood lumber, giving it a competitive advantage over U.S. lumber. The United States imposed quotas and tariffs on Canadian softwood lumber exports to make American wood more competitive.

As the value of the Canadian dollar increased, its softwood exports became more expensive for buyers, reducing its cost advantage over American wood. With the price rising on its own, tariffs became irrelevant and a deal was easier to reach.

Maine businesses near the border report an increase in the number of Canadians shopping in stores and staying overnight in local hotels. On the negative side, since U.S. dollars are worth less in Canada, it may be more difficult for American businesses to lure Canadian workers. The logging industry has yet to see a labor shortage largely because mill shutdowns in Old Town and Berlin, N.H., have decreased the demand for wood.

In Canada the rising dollar is not all good news either. Because Canadian goods are more expensive to buy, demand is declining, contributing to a loss of more than 100,000 manufacturing jobs last year, although gains in construction and retail have exceeded these losses.

Canadian tourism will also be dampened, especially as fewer Americans no longer head north because their U.S. dollar isn’t worth nearly as much as it was just a few years ago. Gas prices and a U.S. requirement for a passport to re-enter the country from Canada will further hurt tourism.

So far, the rising Canadian dollar has been largely positive for Maine, but a tourism downturn in the Maritimes or a timber logging shortage could be felt on both sides of the border.