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The Log Tax Is Harming Both Americans and Canadians

Lawrence W. Reed

In early May, Vancouver in Canada’s far western province of British Columbia is a beautiful place. Full-bloom dogwoods, rhododendron, and azaleas blanket the city against the backdrop of a sky-blue harbor and beckoning snow-capped peaks.

“What a contrast!” I thought as I walked the streets of Vancouver two weeks ago, “between the calming artistry of nature and the nastiness of politics."

I was there barely a week after President Trump’s imposition of 20% tariffs on logs imported from Canada. It was also just days before elections that would determine which party controlled the British Columbia Legislature and, thereby, who would serve as the province’s next Premier.

The timing was superb for enjoying the sites of Vancouver but not so good for Trump’s tariffs.

A Tax on Americans

Incumbent Premier Christy Clark suggested retaliation in the form of restrictions or an outright ban on thermal coal from the U.S.As Mark Perry explained, the new duties were ushered in amid plenty of bluster about “unfair” and cheap, subsidized lumber from our northern neighbors but they are actually taxes levied on Americans who buy Canadian lumber, especially American home builders, bed-frame and pallet manufacturers, and picket-fence makers. All the time-honored logic of trade economics applies here, suggesting that not much good, and perhaps a lot of harm, would likely ensue for parties on both sides of the border.

I picked up a copy of the British Columbia edition of The Globe and Mail to see what the Canadians were saying about it all.

As you might imagine, nobody was cheering for Trump and the U.S. In fact, the incumbent Liberal Party of Premier Christy Clark, locked in a battle for votes with the decidedly more socialist NDP (New Democratic Party) and the equally socialist Green Party, felt compelled to prove that its generally trade-friendly posture only went so far. Clark suggested retaliation in the form of restrictions or an outright ban on thermal coal from the U.S. The other parties promised an even “tougher” stance.

Stooges

Protectionism is like a Three Stooges episode: You slap me, I poke you in the eye. The one difference is that when a government slaps and pokes another government, each one ends up assaulting its own citizens as consumers and producers.

Trump’s ill-timed tariffs were pushing all the major British Columbia political parties in the wrong direction. Voters ended up giving the Liberal Party a razor-thin plurality which may yet dissolve into a loss if the NDP and the Greens team up in a coalition. If that happens, both socialism and protectionism will get a boost in British Columbia while American lumber buyers get slammed.

But lest we dump all the blame on Trump, let’s understand that this is really a “pox on both your houses” conundrum. In the same newspaper in which I read about Premier Clark’s threatened tit-for-tat, Canadian columnist Barrie McKenna pointed his finger at Canada’s existing policies for prompting the Trump tariffs.

Export Restrictions

One such policy is the practice of federal and provincial governments in Canada charging below-market rates when they sell lumber from their vast land holdings. That’s a subsidy, and if the land were owned privately it’s hard to imagine that private firms would charge less than the market will bear and encourage over-use of their resources through underpricing simply to be charitable.

Likely more counter-productive than those subsidies, writes McKenna, are “log export restrictions that exist only in British Columbia.” (Though both British Columbia and the federal government in Ottawa restrict the export of logs from government land, British Columbia is the only government that restricts exports from private lands as well).

I had to read that two or three times. Log export restrictions? What? So governments subsidize logging on their lands and then stifle the sale of logs to the U.S.? Yes. This is government, mind you, so it doesn’t have to make sense to anybody but politicians and their politically-connected friends.

McKenna writes,

Those restrictions, in place since the 1880s, are an aberration in Canada’s generally open economy. Indeed, logging is a rare example where governments dictate to private interests what they can export, for reasons other than national security … Economists in Canada have warned for years that the policy lessens competition for logs, increases the supply of timber available to mills in British Columbia and suppresses prices by up to 50 percent. And that lowers the cost of finished lumber (emphasis mine), such as two-by-fours, destined for the U.S. market.

If that’s confusing, just think of it this way: What government gives loggers with one hand in British Columbia, it substantially takes with the other by telling them where they can sell their logs. Subsidized logs that can’t go to the U.S. because of export controls end up at Canadian mills at depressed prices. There, they are converted into planks and two-by-fours whose export is not restricted. And it’s those planks and two-by-fours that Trump just slapped a 20% tariff on.

A Better Path

You slap me, I poke you in the eye. Wouldn’t it be better for everybody if we all just stopped slapping and poking each other? Yes, and that’s called free trade. The problem is that even though “free trade” makes all the sense in the world, governments have both the power and the incentive, at least in the short term, to slap, poke, subsidize, and sell favors.

Moreover, log export restrictions are not unique to British Columbia. “The United States, for example, has an export-licensing regime for trees cut on federal and state lands,” says McKenna. “What’s unusual about Canada’s regime is that it also covers trees on private land in British Columbia.”

One of the reasons governments shouldn’t intervene in trade in the first place is that interventions become addictions. The benefits are targeted on a few at the expense of the many and when those benefits are offset by a government on the other side of the border, it’s hard to get the first government to call it quits. Intervention A leads to Intervention B, which provokes Intervention C, which in turn sparks Intervention D and so on, until the process is reversed or the alphabet and economic freedoms are exhausted.

What a ridiculous, self-defeating racket this protectionism stuff is!"From another city in Canada – Montréal, in the eastern province of Quebec – comes an intriguing proposal to scale back some of this nonsense. The Montreal Economic Institute suggests that trade negotiators for Canada and the U.S. should work out a “lumber for cheese” swap: the U.S. would dismantle its barriers on Canadian lumber and in exchange, Canada would get rid of its barriers on American dairy and poultry.

MEI says the crazy-quilt patchwork of subsidies, quotas, and export controls on both sides of the border cost consumers billions in higher prices. Since “supply management” by the two governments has been problematic from its inception, premised as it is on the insane notion that fines and penalties help the economy, let’s just negotiate them away. Tit-for-tat in the right direction, for a change.

Free traders like myself see many advantages to abolishing protectionist devices unilaterally, regardless of what the other side does. As Frederic Bastiat explained, we should be grateful when the sun shines its light for free, even if it means candlemakers sell fewer candles. Forcing everybody to paint their windows black to keep out the free sunlight only deprives everybody of value and convenience. We can apply the savings to some other endeavor, stimulating yet other industries in the bargain. If that’s unrealistic, it’s only because of politics, not because of economics.

Let’s rid ourselves of these senseless interventions as soon as we can, one way or the other.

Thinking about all this as I departed beautiful Vancouver, I found myself shaking my head as I’ve done so many times when contemplating the policies of government. What a ridiculous, self-defeating racket this protectionist stuff is!

Oddly enough, it was the 20th-century comedian Jimmy (“The Schnoz”) Durante who gave us a succinct answer to this recurring problem when he said, “Don't put no constrictions on da people. Leave 'em da hell alone.”

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