A History Lesson on Paper Tariffs

Martin Fairbank
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In January 2018, the US Department of Commerce slapped a tariff ranging from 0.65% to 9.93% on Canadian producers of uncoated groundwood paper.

This followed a tariff applied in 2015 on Canadian supercalendered paper. The last time before this that there was any import tariff on paper to the U.S. was in 1913, when the industry dynamics were quite different from today.

From 1789 to 1913, the only revenue for the US federal government coffers was from duties on imported goods and taxes on domestically manufactured goods, respectively known as customs and excise. Newsprint made from wood pulp was a fairly new product at the time (until the 1870s it was made from cotton rags). The market was rapidly expanding, and US newspaper publishers couldn't get enough of it. International Paper controlled 75% of the US newsprint market, which newspaper publishers complained was giving them a virtual monopoly and high pricing. They lobbied for the elimination of tariffs on newsprint from Canada (which was then running at $5.75 on top of the $50/ton price or a rate of 11.5%) so that they could import newsprint at a competitive rate from Canada. Elimination of these tariffs was so highly anticipated that 81 new Canadian forestry companies were established in 1911 (although they didn't all result in facilities being built!)

Two things happened in 1913 that finally enabled free trade for newsprint and wood pulp to occur. The Underwood Tariff Act, signed into law by President Woodrow Wilson, gave "unconditional free importation of wood pulp of all kinds and of ordinary printing paper", and eliminated or reduced tariffs on many other imported products. And ratification of the Sixteenth Amendment to the U.S. Constitution gave Congress the power to collect income tax from the US population, replacing the income lost from reduced tariffs.

Consider the situation today. The paper market has been shrinking for twenty years, causing many mills to shut down. The exchange rate today is around 80¢ to the US dollar, compared to a dollar at par in 1913. Publishers still don't want a tariff (1000 of them have lobbied for its removal), and even 34 House and 8 Senate members have complained about the tariff, but the Department of Commerce appears to be listening only to the complaint of one Washington state paper mill, which is probably feeling the pressure of being at the wrong end of the cost curve.

Woodrow Wilson was a Democrat who served as US president from 1913 to 1921. He was replaced by Warren Harding, a Republican who ran for election with the slogan "America First". Sound familiar? Harding had the good sense to maintain free trade in newsprint and pulp, now that income tax was resulting in a reliable source of income for his government, and between 1913 and 1929, about 25 new newsprint mills were established in Canada, leading to a period of prosperity for both papermakers and publishers in North America.

Martin Fairbank, Ph.D. Martin Fairbank has worked in the forest products industry for 31 years,
including many years for a pulp and paper producer and two years with
Natural Resources Canada. With a Ph.D. in chemistry and experience in
process improvement, product development, energy management and lean
manufacturing, Martin currently works as an independent consultant,
based in Montreal. He is also an author, having recently published
Resolute Roots, a history of Resolute Forest Products and its
predecessors over the last 200 years.

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Martin Fairbank Consulting

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