Supply management versus softwood lumber: It’s win-win
By Montreal Economic Institute
March 23, 2017 - With the United States on the verge of reopening NAFTA, Canada should seize this opportunity to open its agricultural markets, and in return ask for full access to American markets for its softwood lumber, argues an Economic Note published today by the MEI.
"Trade between Canada and the United States having stagnated since the early 2000s, eliminating supply management and softwood lumber tariffs would be a good way of breathing new life into the economic partnership," points out Alexandre Moreau, Public Policy Analyst at the MEI and author of the publication.
The system of quotas and tariffs imposed on dairy, eggs, and poultry blocks the entry of foreign products and costs Canadian household $258 a year on average, according to the OECD. Furthermore, if the United States went ahead with the imposition of a 25% tariff on Canadian softwood lumber, the average price of a new home on the American market would increase by $1,300. Just for single-family homes, these additional costs would total $1 billion.
"Trade barriers have always enriched a small minority of people at the expense of the vast majority," says Mr. Moreau. "The disappearance of existing tariff barriers would be very beneficial for Canadian and American consumers alike."
Consumers are not the only ones who suffer in the current situation. Canadian farmers also lose under supply management, since it deprives them of access to billions of consumers around the world. Moreover, the funds required to purchase quotas limits their ability to invest to increase the productivity of their farms.
"Putting supply management on the table would be a good negotiating tactic that could convince the American government to drop the idea of imposing tariffs on Canadian softwood lumber," adds Mr. Moreau. "We would thus avoid an nth softwood lumber dispute of the kind we've struggled through every five or ten years."
Canada is the second largest trading partner of the United States, with trade totalling nearly $882 billion a year, or almost $2.5 billion a day.
"To preserve and even expand economic relations between the two countries, it is imperative that politicians on both sides of the border resist the influence of lobby groups and come to the defence of the millions of consumers who pay the price for protectionism," concludes Michel Kelly-Gagnon, President and CEO of the MEI.
The Economic Note entitled "Trading Supply Management for Softwood Lumber?" was prepared by Alexandre Moreau, Public Policy Analyst at the MEI. This publication is available on our website.
The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.