What to Know About New Canadian Tariffs: A Brief for U.S. Timberland Investors

On Tuesday, March 4, 2025, the Trump Administration imposed 25% tariffs on imports from Mexico and Canada. Given that one-quarter of all the softwood lumber consumed in the United States comes from Canada, U.S. timberland investors are naturally interested in how this could impact their assets.

Based on what is known today, we can map out a likely sequence of events that could play out in the market:

1. A 25% tariff will be applied on top of the existing antidumping and countervailing duties that total about 14.4% for most Canadian lumber producers. That means Canadian lumber imports face a combined 39.4% trade levy.
2. The most immediate market reaction is a positive price uplift for lumber produced in the U.S. Pacific Northwest – particularly the spruce-pine-fir (SPF) lumber grade, which competes directly with Canadian imports. Understand that not all of the tariff will be passed directly to the end-user; a likely scenario is a 50% to 75% tariff pass-through with both the Canadian exporter and the U.S. importer absorbing the rest.
3. As SPF lumber prices increase, this will have a positive spillover effect on the southern yellow pine (SYP) lumber that is produced in the U.S. South.
4. With higher demand (and prices) for lumber, mills in the Pacific Northwest and South can be expected to ramp up production. Operating rates could increase from mid-70% today to the low 80% toward the latter half of the year. As production ramps up, mills will increase their purchases of sawtimber (large logs) and chip n’ saw (mid-sized logs); both are the raw materials used in making solid dimensional lumber.
5. Wood markets in the U.S. Pacific Northwest could first see a positive uplift in log prices. This is mainly due to the direct substitutability of U.S. SPF lumber for Canadian SPF. Price gains in Southern timber markets may be slower to respond as there is more spare wood inventory in the region, thereby creating greater slack in the market.

A related question on the mind of many timberland investors is how 25% tariffs on Canadian lumber imports would impact new home construction. The answer is little to no direct effect. Based on data provided by the National Association of Home Builders (NAHB) and Fastmarkets Random Lengths (the leading reporting service on lumber prices), the cost of lumber – including delivery and distributor’s mark-up – makes up less than one-sixth of the price of a new home.¹ Other factors besides lumber prices are more important to the health of the home construction sector, namely: mortgage rates; availability of housing lots; and immigration enforcement.

While the immediate impact of the tariffs could be beneficial for timber markets, there are secondary economic effects that could cloud our medium-term outlook. A trade war with the U.S.’s three leading trade partners – China, Mexico, and Canada – could escalate or drag on for an extended period. Tariffs and trade disputes create consumer uncertainty, can increase inflation, and slow economic growth. These negative impacts can result in fewer housing starts and less spending on home improvement.

At this point, there are many unknowns and moving parts. Indeed, the President’s often overriding interest in getting trading partners (and political leaders) to the negotiating table suggests that it may be too early to draw hard conclusion from this analysis. We will do our best to assess this new trade environment as it develops further and will update you as we see changes in our outlook.