Tariffs or no tariffs?

In early February, things happened fast in the US. On January 30, President Trump signed an executive order about additional tariffs on imports from Mexico (25%), Canada (25%) and China (10%), which were supposed to come into effect already on February 4. After days of agitation, the US’s neighbors in the south and north managed to avert the tariffs for the time being, to be precise for 30 days. 

Unimpressed lumber market

What was remarkable was the reaction – or rather the lack of such – of the US lumber price to the potential duties. In the week the executive order was signed, the price of E-SPF (2-by-4, 16 feet, KD, #2&better, loaded on truck) even fell slightly by US-$2/1,000 bft. Thus, the short-term market upturn and the resulting increase in prices, which were predicted by several market participants, did not happen.

In the following week, the week of February 3, the price rose by US-$25/1,000 bft to US-$600/1,000 bft, which is the highest value since November 2024. European suppliers recorded an increase of €14/m³ to €376/m³.

In response to the US’s plans, several Canadian sawmills announced that they would have to pass on any US tariffs, which exceed the existing 14.5%, to their customers in the US. This would have also applied to orders which had already been placed, but US customers would have had the possibility to rescind from existing contracts on short notice. Lately, 28.1 million m³ softwood lumber were traded for US-$5.1 billion, making Canada the US’s most important trading partner (see article Softwood lumber imports down compared to 2023). The US’s domestic softwood lumber production totals around 85 million m³ a year. At 118 million m³ a year, consumption is far higher than output. So, the US cannot do completely without Canadian lumber.

Opportunity for Europeans?

After these turbulent days, there is a mixture of helplessness, restraint, continuity and cautious optimism among European suppliers and their customers in the US:

• Helplessness: “Nobody knows what will actually happen and how to react to it.” “We’re not panicking but we’re definitely worried.”
• Restraint: “We can see that US buyers are hesitating at the moment. In addition to the uncertainty, the weather conditions also play a role.”
• Continuity: “We are delivering the same quantities as always across the Atlantic.” “Excessive stockpiling in the winter months was not worth anything in the previous spring either.”
• Optimism: “For us, there’s nothing better than Canadians having to pay tariffs while we don’t.” “The risks are on the table – the opportunities are in front of us.”

Should the punitive tariffs actually come into force at the beginning of March, Canadian suppliers will likely follow through with their announcements and raise prices for the US market accordingly. Anything else would not be economically viable for them. European suppliers, on the other hand, would have a significant advantage in terms of prices, provided, of course, that Trump spares the EU from tariffs.

40% in punitive tariffs?

The Canadian sawmills have been struggling with anti-dumping and countervailing tariffs imposed by the US since 2017. Those tariffs have since been adjusted repeatedly and currently average just under 15%. The new duties (Sixth Administrative Review; AR6) are to be announced by the US Department of Commerce by February 20. If another 25% were added, the total would be almost 40% in tariffs to be paid.

Hard times for Canada

Already in 2024, some western Canadian sawmills have closed for good. These closures were the result of the challenging situation with Canada’s southern neighbor but also of the extensive damage caused by forest fires and the scarce supply of log wood.

All of this is in stark contrast to the southeast of the US, where Canadian companies in particular are currently making substantial investments in sawmill capacities. According to the online medium Transport Topics, the southern US is even close to having a higher softwood lumber production capacity than the whole of Canada – which is remarkable given that the latter recently produced 48 million m³ a year. However, even if all US sawmills fully utilize their capacities and European suppliers also significantly increase their trade volumes, the US will not remotely be able to do without Canadian lumber in the future. Thus, it is not surprising that US economists and builders reject the statement of their President Donald Trump: “We don't need the products that they have ... We have all the trees we need.” Rather, they warn that the US currently does not have the industrial capacities to meet demand, and that imposing higher tariffs – or worse still, stopping Canadian lumber imports – could further exacerbate the ongoing housing affordability crisis.