Trade Policy Analysis No. 11

Nailing the Homeowner: The Economic Impact of Trade Protection of the Softwood Lumber Industry

By Brink Lindsey, Mark A. Groombridge and Prakash Loungani
July 6, 2000

Even though Canada is the United States’ largest trading partner and most goods flow freely across the border, one U.S. industry—softwood lumber—continues to lobby successfully for the imposition of trade barriers against our neighbor to the north. Although there is a long history of trade barriers in this industry, the most recent manifestation is the Softwood Lumber Agreement, which was signed in 1996. The SLA imposes special fees on any softwood lumber imports in excess of 14.7 billion board feet. The SLA is set to expire in April 2001, and the U.S. and Canadian governments are considering options that might replace the SLA.

The best policy course is to simply let the SLA expire and not impose any new barriers. We calculate that trade restrictions add an estimated $50 to $80 per thousand board feet to the price of lumber, which drives up costs and shrinks profits for lumber users. The resulting addition of $800 to $1,300 to the cost of a new home prices some 300,000 families out of the housing market, denying them the dream of home ownership.

Protectionist trade barriers in the softwood lumber industry impose great costs on businesses and consumers here in the United States in order to enrich a few lumber producers. To put employment figures in perspective, it is noteworthy that workers in the major lumber-using sectors outnumber logging and sawmill workers by better than 25 to 1.

Advocates of protectionism claim that trade barriers are necessary to offset unfair subsidies enjoyed by Canadian lumber producers, but such claims do not withstand scrutiny. Neither do arguments that free trade in lumber would harm the environment. It is time for the United States to stop lining the pockets of a few producers here at the expense of U.S. homebuilders and families who dream of owning their own homes.

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Brink Lindsey and Mark A. Groombridge are, respectively, director of and research fellow at the Cato Institute�s Center for Trade Policy Studies. Prakash Loungani is an economist with the International Monetary Fund. The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or IMF policy.