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Abstract

I develop a two-country theoretical trade model to show that Canadian subsidies increase lumber supplies and exports to the United States, and the U.S. retaliatory tariff raises U.S. prices safeguards producers, but hurts consumers. These results underscore the short-sightedness of policy decisions in a bilateral trade dispute, as empirical results from the multiregional spatial equilibrium trade model highlight that both countries pursue myopic policies without taking into account the reactions of other exporters and importers. For instance, after the imposition of U.S. tariffs, other exporters grab the market share lost by Canada in the United States, while Canada augments its exports to other importers.

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