U.S.-Canada Softwood Lumber Trade: Measuring the Market and Welfare Impacts of Restrictions
2006
Baek, J. | Yin, R.
The U.S.-Canada softwood lumber trade dispute is the largest and most contentious one between the two countries. Using a simultaneous system of equations and a vector auto-regression model, and quarterly data for over the last two decades, this article assesses the impacts of the Memorandum of Understanding (MOU) and Softwood Lumber Agreement (SLA). We find that the MOU causes Canadian exports to drop by 8.4-9% during 1986:4-1991:3, which in turn pushes up the U.S. production by 3%. But it does not lead to higher lumber prices. The SLA does not have any significant impacts on the lumber market during 1996:2-2001:1. In addition, the price elasticities of domestic and Canadian export supply are smaller than those commonly used in evaluating the gains and losses of the U.S. restrictions, whereas such factors as exchange rates, housing starts, and log prices have played major roles in shaping the lumber markets. Combining the modest market impacts and smaller price elasticities, we obtain only moderate welfare consequences of the trade restrictions.
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