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The economic landscape of North America is experiencing one of the most intense periods of trade tension in its history. President Trump’s announcement of new tariffs to the tune of 10% on all imports from China and 25% on imports from Mexico and Canada has sent ripples through global trade, and the effects will hit several sectors hard. Sources: Timberbiz, ResourceWise. Among the products listed, Canadian lumber plays a pivotal role. Its implications are profound for the US lumber market. President Donald Trump declared an economic emergency to enforce a tariff policy, introducing a 25% duty on imports from Canada, one of the United States’ most significant trading partners. These tariffs target key goods such as energy oil, natural gas, and electricity as well as timber and lumber products exported from Canada to the US. On August 13, 2024, the US Department of Commerce released the final results of its Fifth Annual Administrative Review concerning the antidumping (AD) and countervailing (CVD) duty orders on Canadian lumber exports. The review set a new combined duty rate of 14.54% for most Canadian lumber exports, almost doubling the previous rate of 8.05%. This new rate applies retroactively to lumber exports made in 2022, as well as to new shipments. For the Canadian softwood lumber sector, which is already the largest foreign supplier of softwood lumber to the US, these developments present a significant challenge. Many industry professionals believe that the 25% tariff introduced under the economic emergency will be imposed in addition to the newly adjusted duty rate. If this proves to be the case, Canadian lumber exports could face a combined effective tariff of 39.5%. The impact of these measures stretches deeply across the operations of lumber producers and forest products professionals, affecting businesses on both sides of the border. Although the announcement of a one-month delay on these tariffs was made, understanding the potential impacts remains crucial. There are substantial implications for both Canada (supply side) and the US (demand side). While both sides of the border are grappling with low operating rates and difficult economics, the US is likely to fare better in the long run. Here is why. ResourceWise estimates that approximately 1.3 billion board feet of lumber capacity in British Columbia is now at risk due to these tariffs. The added costs make it increasingly difficult for Canadian producers to export lumber to the US profitably. Canada is a Spruce-Pine-Fir market. Historically, when US demand was not satisfied from Canada, Pacific Northwest (PNW) lumber producers stepped in first to fill the gap, followed by imports from Scandinavia. Currently, European lumber imports represent about 6% of US lumber demand. With higher tariffs in place, we expect both PNW producers and European exporters will be positioned to benefit from this. However, as domestic production in the PNW ramps up to offset reduced Canadian imports, log supply in the region will tighten. This imbalance will lead to higher log costs, increasing pressure on sawmill profits. Southern Yellow Pine (SYP), while not a direct substitute for SPF in framing applications, may see a slight uptick in demand, which the South would benefit from. Yet, we do not expect log prices to increase due to an overabundance of pine sawtimber. To compensate for the reduced Canadian supply, these three scenarios could likely play out in some proportion. Increased Production in the Pacific Northwest (PNW): The operating rates in the PNW are historically low. We expect operating rates to increase from the low 70% range to nearly 80%, resulting in a 5% to 10% boost in lumber production from existing sawmills. This would increase total annual production by 0.6 billion board feet to 1.3 billion board feet. However, we expect some upward price pressure on logs prices to accompany the new demand. Scaling Up Production in the South: Southern sawmills may also step up production to help bridge the gap. If PNW production lands on the lower end of its projected range (5%), it would only cover half of the 1.3 billion board feet shortfall. The remaining deficit would likely require a 3% increase in Southern production. As mentioned earlier, there is no strain on the sawlog supply, so sawtimber prices would stay stable. European Imports: A third option involves boosting lumber imports from Europe. Again, if PNW production lands on the lower end of its projected range (5%) – to fill the deficit, European exporters would need to increase their shipments to the U.S. by 22%, raising their market share from 6% to 7%. While we expect import volumes to increase, lumber prices would have to increase sustainably for incremental volume to arrive profitably. What Comes Next for Forest Products Professionals? The full impact of these tariffs on lumber markets will not be immediate, but the long-term effects could reshape industry dynamics. Reduced Canadian imports could mean shuttered mills and a permanent loss of capacity. The supply would then shift to US producers or European importers. For global buyers, diversification of sourcing strategies will become increasingly important. European and other international suppliers may see opportunities to fulfill growing demand in the US market. However, geopolitical and economic factors mean this diversification strategy also carries risks. The US-Canada trade tensions highlight the fragile interconnectedness of global markets. For forest products professionals and lumber producers, these tariffs are both a challenge and an opportunity.