While the Canada-U.S.-Mexico Agreement (CUSMA) guarantees duty-free access for the vast majority of Canadian exports, the forestry sector remains a glaring casualty. In today’s Twenty Four, we examine the state of Canada’s softwood lumber industry and the toll U.S. protectionism is taking on producers.

To fully grasp the severity of the current trade environment, it is essential to construct an image of what the industry looked like pre Trump 2.0. As of 2024, the broader forestry sector* contributed approximately $31 billion to Canada’s nominal GDP. While this represents a small fraction of the national economy, that figure obscures the local reality: in nearly 300 communities across the country, forestry is not just a contributor; it’s the cornerstone.

Alberta is a significant contributor to Canada's softwood lumber production, ranking third in the country after Quebec and British Columbia, and making up about 20% of the total output.

With over 50% of softwood lumber production destined for U.S. markets, the industry is structurally tied to the U.S.. Demand is particularly sensitive to the U.S. housing market since the majority of homes in the U.S. are framed with softwood lumber and the U.S. is unable to produce all the lumber it needs domestically, meaning demand for Canadian wood rises and falls in lockstep with the status of the U.S. housing market.

While the rise of U.S. protectionism has drastically impacted the lumber industry, it was already facing numerous headwinds. The forestry sector was dealing with the long-term fallout from the mountain pine beetle epidemic that altered the economics of production followed by severe wildfire seasons between 2017-2024.

Prior to the return of President Trump, producers were already navigating a combined duty rate of 14.54%**. This baseline rate included anti-dumping duties and countervailing duties that the sector had effectively normalized.

Fast forward to 2025, and a lot more duties are in place. Following the U.S. Department of Commerce’s Sixth Administrative Review, the general rate applied to the vast majority of Canadian producers, was finalized at 35.16%. To make matters worse, effective October 14, 2025, the U.S. imposed an additional 10% global tariff (and a 25% tariff rate on kitchen cabinets going up to 50% on Jan 1, 2026) under Section 232, pushing the total effective tax burden for the average Canadian mill to over 45%.

How has the industry responded? Let’s look at the data. The seasonally-adjusted value of exports of wood products (HS Code 44) to the U.S. saw an increase earlier in the year but has pulled back markedly since. As of the third quarter, they were down to the lowest point in five years, posting a 4.7% decrease year-to-date (YTD). While not by much, exports of the same to other countries rose 4.5% during the same timeframe, led by China (+9.7%) and the Philippines (+13%). Prices have held mostly steady this year, up only 1.3%, so the overall decrease in export revenues has been largely volumetric.

In response to these duties, a clear trend has emerged among major producers: shift capacity to lower-risk jurisdictions while curtailing operations in Canada.

For instance, in West Fraser’s Q3 2025 investor presentation, the company explicitly stated a strategy of shifting capacity to "lower-risk, lower-cost regions," a euphemism for reducing operations in western Canada. In November 2025, West Fraser announced the permanent closure of its 100 Mile House mill in B.C., removing 160 million board feet of capacity.

Another producer, Interfor, announced a curtailment of 250 million board feet in Q4 2025, representing 26% of its total production capacity, citing lumber prices and reduced market demand.

All of these somewhat discouraging updates might lead to the question: what options remain to alleviate the pressure on these producers? As discussed earlier, exports to non-U.S. destinations have increased modestly, though not to the degree to which they can meaningfully compensate for the loss of U.S. demand.

Another approach is government initiatives and support for the lumber industry. Ottawa has injected $500 million into the BDC Softwood Lumber Guarantee Program and earmarked another $500 million in loans to keep solvent firms afloat. Additionally, a 50% freight rate subsidy for interprovincial transport (starting spring 2026) to help B.C. lumber reach Ontario/Quebec markets competitively.

Looking forward, producers are navigating a shifting landscape characterized by a cooling U.S. housing market and the upcoming CUSMA review. Federal aid serves as a vital bridge during this period, providing the stability needed to manage this transition and adapt to new market realities.

*Includes forestry & logging, pulp & paper manufacturing, and wood product manufacturing.

**The softwood lumber dispute with the U.S. dates back to 1982.

Answer to the previous trivia question: It’s true: The Minister of Finance (or their representative*) sits on the Bank of Canada’s Board of Directors but has no vote. *The Minister’s current representative is Deputy Minister of Finance Chris Forbes.

Today’s trivia question: Known as Hyperion, where is the world’s tallest tree located?