The present threat by President Donald Trump on trade with Canada reminded me of an article published in the Canadian Journal of Economics.
At issue was the threat of U.S. imposed import tariffs on Canadian softwood lumber, a major component of 麻豆社国产and British Columbian industry.
The U.S. lumber producers claimed that Canada subsidized logging through stumpage fees that were below the prices that U.S. producers paid for logging rights on largely private property. This was not supported by the World Trade Organization. Across-the-board stumpage did not meet the criteria for “subsidies,” not that this was sufficient to deter the U.S. from taking protective measures against competition from Canadian exports.
In the eleventh hour of negotiations, the U.S. accepted a proposal by Canada that, rather than the Americans imposing an import tariff, Canada would impose an export tariff (tax) on lumber shipped to the U.S.
Modelling the social welfare effects indicated that both countries were net worse off: U.S, producers benefited from impeding Canadian imports allowing them to raise prices to U.S. consumers who were made worse off.
Without the tariff revenue, the net effect was for a social welfare loss.
By conceding a share of the U.S. market, Canadian producers were made worse off. However, the negative effects on Canadian social welfare were ameliorated by the revenue that flowed from the export tax.
Given the prominence of the softwood lumber industry in British Columbia at large and 麻豆社国产in particular, an equitable allocation of that revenue could have reduced the impact on the province and the town.
This case suggests a resolution to the current dispute on the matter of tariffs on Albertan exports of oil and gas to the U.S.; the federal government seeks to have all sector exports on the table for retaliation to American threats, while Alberta seeks to exclude such exports. Although the situation is different, there is a lesson to be learned from the above case.
It is quite possible, indeed likely, that the U.S. would exempt such imports given Trump’s focus on lowering their domestic gasoline prices. In such a situation, Canada might find some partial middle ground with Alberta by proposing an export tariff on oil and gas, with the revenue going to Alberta to partially offset its loss of U.S. market share should a trade war unfold.
This would not fully compensate for Albertan free trade in oil and gas but would serve Canada as a retaliatory move should Trump’s threats continue to loom.
On the larger issue of total welfare effects of tit-for-tat imposition of tariffs from both sides of the border, various economists have predicted that both countries would be made worse off, with recession a real prospect for Canada. Such an existential threat might only be deterred by sufficiently aggressive prospective moves to demonstrate enough pain on U.S. producers and consumers to deter Trump from following through.
An export tariff on Albertan oil and gas would raise U.S. oil and gas prices and deny the U.S. revenue that Trump has been touting as the major benefit of tariffs.
Employing that revenue to offset the negative impact on Alberta’s primary industry should an export tariff actually be applied strikes me as a reasonable compromise between provincial and federal interests in meeting Trump’s threats.
John Hughes
Squamish
