Inflationary factors were in the news this week, even though the threat of higher consumer prices remains low.
*At midweek, the Federal Reserve Board boosted a key short-term interest rate by one-quarter percentage point. It was the fifth increase this year, as the Fed looks to control the moderate pace of economic growth. *Then on Friday, the government reported a mild increase in inflation, as volatile food and gasoline costs stabilized. That's the good news.
*On the flip side is a ballooning U.S. trade deficit, which in October swelled to an all-time high. A key element of the increase was the politically sensitive trade gap with China, which hit a record $16.8 billion.
As with China, trade problems with other nations also can be politically charged. On a state visit to Canada last month, President Bush promised to take action on Canadian complaints about U.S. tariffs on softwood lumber. That action was taken this week, but NOT to the satisfaction of all parties involved.
The Commerce Department decision would cut tariffs on softwood lumber from an average of 27.2 percent to 21.2 percent. Commerce stated the cut accurately reflected subsidies by six Canadian provinces that allow their producers to sell lumber in the U.S. at below market value. According to Commerce, those prices compete unfairly with U.S. producers.
The Bush administration enforced the tariffs in 2002 after accusing Canada of subsidizing its lumber industry. Most U.S. timber is produced from private land, but in Canada, 90 percent of timberlands are owned by the government. While the U.S. timber industry basically has agreed with the tariffs, home builders on both sides of the border say the duties have driven up the cost of new homes in the U.S. and have hurt Canadian lumber exporters. In 2003, the U.S. imported about $4.6 billion of softwood lumber from Canada, about a third of the American market.
Even though Canadian officials denounced this week's decision, U.S. officials say they remain hopeful that a negotiated settlement will be reached with their neighbors to the north.