Impacts of a Tariff on the U.S.-Canadian Softwood Lumber Trade Patrick Shannon January 30, 2008

Background Ongoing U.S.–Canada softwood lumber dispute for over 50 years U.S. claims that the Canadian lumber industry is unfairly subsidized by the federal and provincial governments Stumpage fee is set administratively rather than through a competitive auction Softwood – evergreens used for 2x4s mostly CA govt. owns majority of land Stumpage fee is price charged to companies to log trees

The Softwood Lumber Agreement U.S. trade laws state foreign goods benefiting from subsidies can be subject to a countervailing duty tariff to offset the subsidy and bring the price of the product back up to market rates In 2002, the U.S. imposed a 27.2% tariff on all Canadian softwood lumber imports

Policy Goals of Tariff Primary: To offset alleged unfair Canadian cost advantages in the market Potential to force reductions in Canadian old-growth forest harvest

What are the projected market impacts and resource tradeoffs? Title: “Market and Resource Impacts of a Canadian Lumber Tariff” Author: Darius M. Adams Journal: Journal of Forestry. 2003, 101: 48-52

Analysis Method Uses a spatial model to calculate projections of production, consumption, prices and trade within and between the U.S. and Canada Accounts for elasticity and price sensitivity of the markets Compares projections without and with a tariff

Data Source Historical government and industry data Elasticities are based on econometric estimates derived from historical data

Supply and Demand Projections

Market Impacts: Canada U.S. Results in lower prices and exports Decrease in lumber production Hurts producers Good for consumers Increase in U.S. price Increase in production on private lands Good for producers Hurts consumers

Market Impacts

Policy Implications – U.S. Tariff benefits U.S. producers increasing production to 115 mcf/yr on average over 10 years U.S. consumers loose – 3.9% increase in expenditures Increase in U.S. private land harvest, not old-growth

Policy Implications - Canada Hurts Canadian producers, reduction in 150 mcf/yr over 10 years Canadian consumers gain from lower prices Reduction in Canadian old-growth harvest

Conclusion Models predict the tariff helps U.S. private land producers, hurts consumers Does reduce the amount of old-growth harvested in Canada

Questions?