Ricardo on Why Canada is not Subsidising Timber

Trump has imposed an import tariff on Canadian lumber.

Why- because unlike most us Timber production much Canadian timber comes from government land on which a peppercorn rent is charged.

Is this an implicit subsidy?  No and Ricardo had the reason, bit nothing to do with comparative advantage – Canada doesn’t seem to have a comparative advantage in timber – indeed the reverse when transport costs to market are considered.

The reason being his theory of land rent.  That land rent doesn’t add to cost because in a competitive market firms paying rent are price takers not price makers.  So if Canada charges less rent then an American rent their profits are higher – as the surplus iss plit less to rent rather than profits.

So American producers to produce the same returns, and not switch capital to Canada, how to reduce costs, so they offer less rent, so American rents go down to match.

If rents are not going down in the US it is a sign of market rigidities, lack of review clauses etc. in American Rental contracts, or landowners trying to gain economic rent – which is just a subtraction from society.

So there you have it – this is not about American Lumber producers being driven out of business but American landloweners trying to earn unearned income from doing nothing – because Canada’s state ownership of forests stops the same rent seeking behaviour over the border.

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2 thoughts on “Ricardo on Why Canada is not Subsidising Timber

  1. That’s exactly it Andrew, most of our forested areas are on Crown lands, and there’s a lot of land. We only have a population of 35 million. Americans don’t understand this.

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