Tariffs Versus Quotas: An Application
The dispute that has raged for many years between Canada and the
United States over the exports of Canadian softwood lumber (spruce,
pine, fir, cedar) illustrates an important distinction between tariffs and
quotas. Over the years, the United States has protected its softwood
lumber industry in two different ways:
by imposing tariffs on U.S. imports of Canadian softwood lumber
by pressuring Canadian governments to place quotas on Canadian
exports to the United StatesAnalysis of Figures 33-1 and 33-2 reveals that the choice between
tariffs and quotas matters greatly for Canadian lumber producers.
In the case of a U.S. tariff on imported Canadian softwood lumber, Figure
33-1 illustrates the U.S. market. An import tariff raises the domestic
price for U.S. lumber users and also increases the profits of U.S. lumber
producers. Canadian lumber producers are harmed because there is less
demand for their product at the unchanged world price. Area ③ in the
figure represents U.S. tariff revenue collected on the imports of Canadian
lumber—revenue that accrues to the United States government.
Figure 33-2 illustrates the U.S. market for softwood lumber when a
quota is placed on the level of Canadian exports (U.S. imports). As with