An analysis of lumber trade restrictions in North America: application of a spatial equilibrium model

The impact of different trade restrictions on Canadian softwood lumber exports to the United States are examined using a spatial equilibrium trade model of the North American (NA) lumber market. Scenarios designed to result in equivalent US domestic market impacts including ad valorem tariffs quotas and a unit tax increase on Canadian timber inputs are simulated. The 27.2% tariff and the quota have the same overall welfare impacts in the two markets with US producers gaining and US consumers losing for an overall market loss of approximately $520 million in the US. Ignoring quota rents, Canadian producers lose and consumers gain as prices fall in Canada for an overall loss of $880 million. Tariff revenues or quota rents, at over $1 billion per year, mean that tariffs (collected by the US) clearly yield a benefit for the US over Free Trade and quotas (rents accruing to Canadian producers) an overall benefit for Canada. If US producer protection is gained through increased Canadian unit timber fees, it has markedly different consequences. Markets that import NA lumber face higher prices in this situation and domestic Canadian prices rise as much as those in the US as the price wedge present in the other scenarios disappears. (c) 2003 Elsevier B.V. All rights reserved.