Welfare Impacts of the Canada‐U.S. Softwood Lumber Trade Dispute: Beggar Thy Consumer Trade Policy

Abstract

The welfare impacts of the 1987–91 Canadian “voluntary” 15% lumber export tax and the current 6.51 % U. S. import duty are analyzed using a simultaneous equations model of the softwood lumber market. The results show that U.S. consumers suffer losses 35% to 45% of those endured by Canadian producers. Canadian national welfare was much higher under the voluntary export tax, indicating the Canadian government erred in unilaterally terminating the agreement. In both instances, the U.S. government pursued policies that benefited domestic producers at the expense of U.S. lumber consumers, with no attempt or discussion of compensation. Thus, this appears to be a case of “beggar thy consumer” trade policy.