the tariff, the restricted supply of Canadian lumber to the U.S. market
drives up the price to U.S. users and also raises profits for U.S. lumber
producers. But with a quota there is an important difference: The higher
price in the U.S. market is received by the Canadian lumber producers, as
shown by area ③ in the figure.
While a tariff and quota may lead to the same reduced volume of trade in
lumber, the tariff permits some surplus to be captured by the importing
country, whereas the quota allows some surplus to be captured by the
exporting country (area ③ in both cases). In the U.S.–Canadian softwood
lumber dispute, both tariffs and quotas have been used. And while free
trade in lumber would be better than any protection for both countries,
Canada has an interest in imposing quotas on Canadian lumber exporters
rather than having the same export reduction accomplished by a U.S.
tariff.