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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 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: Journal: Darius M. Adams 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 data government and industry Elasticities are based on econometric estimates derived from historical data Supply and Demand Projections Market Impacts: Canada Results in lower prices and exports Decrease in lumber production Hurts producers Good for consumers U.S. 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 prices Reduction harvest consumers gain from lower in Canadian old-growth Conclusion Models predict the tariff helps U.S. private land producers, hurts consumers Does reduce the amount of oldgrowth harvested in Canada Questions?