By David Ljunggren
OTTAWA (Reuters) - The United States and Canada faced off on Tuesday in a renewed battle over softwood lumber that threatened to spill over into multiple other sectors, though President Donald Trump said he did not fear a trade war with Canada.
Canada vowed to fight back against Washington's move on Monday to impose tariffs on lumber that mostly feeds U.S. homebuilding, noting trade authorities have consistently sided with Ottawa in the long-standing dispute.
The heated rhetoric came amid fresh attacks from the U.S. president against Canada's dairy industry, and just months after a warm meeting between Trump and Canadian Prime Minister Justin Trudeau in Washington, where Trump said the U.S.-Canada trade relationship only needed "tweaking."
"People don't realize Canada's been very rough on the United States. ... They've outsmarted our politicians for years," Trump said during a meeting with agricultural leaders.
"We don't want to be taken advantage of by other countries, and that's stopping and that's stopping fast," he added.
Trudeau was due to call Trump later on Tuesday after he speaks to the premiers of Canada's 10 provinces, said Andree-Lyne Halle, a spokeswoman for the Canadian prime minister.
Washington said Monday it will impose preliminary anti-subsidy duties averaging 20 percent on imports of Canadian softwood lumber, a move that affects some $5.66 billion worth of imports of the construction material.
Trudeau said he would defend the national interest.
"Standing up for Canada's interests is what my job is, whether it's softwood or software," he said during a visit to a technology company in Ontario.
The two countries were on a collision course over softwood lumber, which has irritated bilateral relations for decades, because a previous agreement had expired.
Natural Resources Minister Jim Carr said Canada was considering all options, including a World Trade Organization or NAFTA challenge, and would help companies and workers who lose their jobs because of the tariff.
POINTING AT NAFTA
The renewed trade dispute, which comes just days after Trump took aim at Canada's "unfair" dairy system, sent the Canadian dollar to a 14-month low as investors braced for tense negotiations with Canada's largest market.
U.S. Commerce Secretary Wilbur Ross on Tuesday called Canada a close ally, but said that did not mean Canadians do not have to play by the rules. Ross said that while no immediate further actions were being contemplated, the disputes point to the need to renegotiate the North American Free Trade Agreement sooner rather than later.
Canada's Carr rejected any suggestion that Canada was not playing by the rules.
"Independent trade panels have repeatedly found these (U.S. lumber) claims to be baseless. We have prevailed in the past, and we will do so again," he told a news conference.
The two countries and Mexico are preparing to renegotiate the 23-year-old NAFTA.
Shares in Canadian lumber companies rose as the level of the new tariffs came in at the low end of what investors were expecting. Canada's main stock index <.GSPTSE> notched a two-month high.
Canada's share of the U.S. lumber market has ranged from 26 percent to 31.5 percent since 2006, when the countries signed an agreement, down from 34 percent, before that, said Duncan Davies, chief executive of lumber producer Interfor Corp <IFP.TO>.
"For us, (U.S. tariffs are) a negative effect on our Canadian business, but the real loser in all of this is the U.S. homebuilder and U.S. consumer, who is looking for reasonably priced product. ... That's why we think this is such a misguided effort," Davies said.
A U.S. homebuilder group called the ruling "shortsighted."
Canadian Trade Minister Francois-Philippe Champagne, in China to boost sales of softwood lumber, said there had never been a better time to diversify exports.
"There is enormous potential," he said from Beijing, citing the large number of Chinese homebuilders and furniture makers who needed lumber.
(Additional reporting by Leah Schnurr in Ottawa, Alastair Sharp and Fergal Smith in Toronto, Rod Nickel in Winnipeg, Allison Lampert in Montreal and Eric Walsh in Washington; Writing by Andrea Hopkins; Editing by Andrea Ricci and Jonathan Oatis)