Lee Friday – June 3, 2017
In April, the U.S. government announced it was imposing duties on imports of Canadian softwood lumber. The Trump administration is justifying this action by claiming Canadian producers have access to public land, a subsidy which puts American producers at a disadvantage; so, the Canadian producers must be punished with import duties. However, “The Canadian government maintains that timber sold at Crown auctions are designed to reflect market rates.”
Clearly, there is disagreement between the American and Canadian governments. For the sake of this article, we will assume the existence of the Canadian subsidy.
ECONOMICS OF THE SUBSIDY
The government decides who gets access to public land, not the citizenry who supposedly own the land. Therefore, it seems obvious that any company which has access to public land is receiving preferential treatment from the government – in exchange for political campaign contributions, future employment for future ex-politicians and bureaucrats etc. etc., you know the drill.
Canadian producers’ access to public land means they are likely paying below-market prices to produce lumber. Instead, the land should be sold to the highest bidder, which is the only way to ensure the land is put to its most productive use i.e. utilized in a manner which entrepreneurs believe will most satisfy the preferences of consumers. In other words, privately owned resources, not publicly owned resources, is the key to rising prosperity, which I have written about here. Thus, basic economics tells us that the existence of public land, let alone the use of it for production, is a misallocation of resources, which works to the detriment of the citizenry.
FROM THE AMERICAN PERSPECTIVE
Remember, we are assuming that Canadian producers have lower production costs because of their access to public land. This allows them to sell lumber to American buyers at prices which are lower than those charged by American lumber producers. I do not support, nor do the American producers support, the preferential treatment given to Canadian producers. However, for American construction companies, and homebuyers, lower prices are desirable. Therefore, the response from the Trump administration is unjustified.
Subsidy or no subsidy, the Americans should welcome lower prices. Let the American lumber producers go out of business – these resources will be allocated elsewhere in the marketplace. This reallocation of resources would produce more goods, more wealth, which benefits workers and consumers. In other words, the Americans should happily accept, not resist, the misallocation of resources in Canada.
Just because the Canadian government has adopted a bad economic policy does not mean the Americans must follow suit. But invariably, that is exactly what governments do. They are always eager to pick the winners and losers. In this case, Trump wants to favour American lumber producers, at the expense of construction firms and homebuyers.
HYPOCRITICAL RESPONSE FROM THE CANADIAN GOVERNMENT
In Canada, Natural Resources Minister Jim Carr said the American lumber duty hurts Canada’s lumber sector and American home-buyers (consumers), who must now pay more for wood.
On June 1st, Minister Carr responded to the American duties by announcing $867 million in financial supports to help lumber producers and employees. Minister Carr will take this money from Canadian consumers (taxpayers).
Let’s be clear about this. Minister Carr expressed concern for Canada’s lumber sector and American consumers. And his brilliant solution is to help Canada’s lumber sector by harming Canadian consumers. As far as consumers are concerned, Carr’s actions are hypocritical. Thus, it appears the only group the Minister really intended to help was the lumber sector (lumber lobby?), just as the U.S. government is doing – in both cases, at the expense of consumers.
During an interview with BNN on June 1st, Baskin Wealth Management President David Baskin said “This is the Liberal government again intervening in the market economy.” Baskin is correct, but when they have been in power, the Progressive Conservatives and NDP have been equally guilty of market intervention in various economic sectors. Whenever governments interfere in the free market, consumers always pay the price.
Minister Carr left the door open for further Canadian actions, meaning more pain for Canadian consumers. On May 8th, Reuters reported “Canada also is considering duties on exports from Oregon such as wine, flooring and plywood, a source close to the matter told Reuters, citing the role played by U.S. Senator Ron Wyden, an Oregon Democrat, in pressing for the lumber tariffs.”
So, an Oregon Senator had some influence over the imposition of the American duty. And our oh-so-wise Canadian politicians believe an appropriate response might be to impose duties on wine, flooring, and plywood imported from Oregon. Of course, if these duties are imposed, it means Canadian consumers will pay higher prices for these products. Would Canadian voters authorize these duties if they could express their opinion in a referendum?
Furthermore, would the $867 million bailout package for the lumber sector survive a referendum? Not likely. And that, dear reader, is the reason you are not allowed to vote on the matter.
Related Story: Does CIBC CEO Victor Dodig believe in free trade, or just the illusion of free trade