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Protectionist barriers to softwood lumber costly for both U.S. and Canada: MEI

The Canada-U.S. softwood lumber dispute that has lasted some forty years is good for neither country, Montreal Economic Institute (MEI) researchers conclude in a publication launched today.

The drop in Canadian production has direct consequences on this country’s forestry industry, and is not offset by the increased production south of the border, which leads to a net loss in the volume of wood available in the American market. This artificially induced greater scarcity of wood leads to higher costs for consumers.

“Following trade tensions in 2016, duties on softwood lumber reached 20.83 per cent. One might have imagined that after decades of disputes over softwood lumber, successive U.S. administrations would finally have understood the counterproductive nature of tariffs, both for producers and for consumers,” said Olivier Rancourt, economist at the MEI.

The financial repercussions are 26 times greater for the U.S. population than for Canadian producers. They represent a loss of economic well-being of $1.5 billion U.S. for consumers south of the border. The loss of well-being for U.S. consumers is also estimated to be 7 per cent higher than the gains for American producers.

“It’s clear that Canada loses numerous business opportunities because of the tariffs. However, it’s Americans who suffer the most from the protectionist measures put in place by their government. U.S. politicians should take note of this and see the harm they’re causing their own population,” said Gabriel Giguère, public policy analyst at the MEI.

“The reason is simple: The reduction of imports of Canadian wood is not fully offset by increased internal production, which reduces the quantity available for consumers. This necessarily entails price increases. Of course, this is not the only element having repercussions on the price of this material, but it is certainly one of them,” added Rancourt.

This much is clear: Protectionism hurts the economies of both countries

The main reason given by the U.S. in favour of implementing these harmful measures is that 94 per cent of Canadian forests are public, which according to them proves that Canadian softwood lumber is subsidized.

However, the U.S. is not alone in imposing these kinds of measures that undermine economic prosperity. Canada is also at fault with its numerous protectionist regulations that serve as barriers to free trade.

“Canada’s supply management is a clear example of a system of economic protectionism. It consists of quotas and tariffs that can go up to 300 per cent on certain products. Duties on Canadian softwood lumber, just like our own supply management system, directly harm the consumers of the countries that put them in place,” said Giguère.

Learn more: Montreal Economic Institute.