Tuesday, December 30, 2025
As the new year approaches, Canadian officials are preparing for crucial negotiations on the Canada-United States-Mexico Agreement (CUSMA). Amid the ongoing trade tensions, Canada’s softwood lumber industry remains a powerful bargaining chip. Despite previous statements from U.S. President Donald Trump that the United States “doesn’t need anything from Canada,” the reality is far more complex. America’s heavy reliance on Canadian softwood lumber gives Canada an unexpected advantage in securing a more favourable deal in the upcoming talks.
Canada currently supplies around a quarter of all the lumber consumed in the U.S. market, with nearly 90% of Canada’s softwood lumber exports destined for American shores. According to Daryl Swetlishoff, head of research at Raymond James Ltd., this over-reliance on Canadian lumber provides Canada with an opportunity to negotiate a deal. Swetlishoff expressed optimism, saying, “The good news is they need our wood. We think that there’s an ability to make a deal at some point.”
The ongoing dispute over softwood lumber has been a thorn in the side of trade relations between the two countries for decades. Despite the tariff-free provisions for most goods under CUSMA, softwood lumber remains excluded from these benefits. The U.S. has imposed a combined duty of around 45% on Canadian lumber, adding a new 10% tariff to the existing anti-dumping and countervailing measures. This ongoing tariff conflict remains unresolved, leaving a significant strain on Canadian producers.
The U.S. Department of Agriculture has warned that if the country were to increase its federal timber harvests, it would need to raise output by as much as 450% to meet the shortfall in Canadian softwood lumber, plywood, and OSB (oriented strand board). However, despite the significant challenges, Swetlishoff noted that the reliance on Canadian imports cuts both ways. While the U.S. is dependent on Canadian timber, Canada is equally reliant on the American market. The scale of Canadian production means it would be difficult to diversify significantly into other markets such as Europe or Asia.
Swetlishoff further explained that the United States will remain Canada’s primary market for the foreseeable future due to the country’s highly efficient and large-scale industry. The reality of Canada’s timber production capacity makes it nearly impossible to replace the U.S. market without significant investments in infrastructure and market access.
Although U.S. officials could potentially increase harvesting from state-owned forests in Washington, Oregon, and Idaho, British Columbia’s government has raised concerns over the U.S.’s ability to match the processing capacity of Canadian producers. The sheer scale of Canada’s softwood lumber production and its processing capabilities make it unlikely that the U.S. can replace these imports at scale.
The tariffs have already had a significant impact on the Canadian industry. British Columbia, which accounts for around half of Canada’s softwood exports to the U.S., has witnessed the closure of multiple sawmills. These closures are a direct result of the increasing tariffs. Swetlishoff highlighted the ripple effects, stating, “You’re seeing cash losses throughout the U.S. south, and we’re going to see curtailments manifest themselves in that region as well.”
In response to these challenges, the Canadian government has taken several measures to support its softwood lumber industry. Earlier this year, the government established the Build Canada Homes agency, which focuses on using Canadian softwood lumber to address Canada’s growing housing crisis. Additionally, the federal government has expanded its Green Construction through Wood (GCWood) program, committing over $9 million to promote the use of advanced wood products, including mass timber.
The Canadian government has also announced a $1.2 billion support package to assist struggling softwood producers. This includes a $500 million increase to the Softwood Lumber Guarantee Program, which provides government-backed loans to help companies manage cash flow during the ongoing dispute with the U.S.
Despite the challenges facing the industry, Swetlishoff sees opportunities in the current environment. He pointed to Canadian companies like Canfor, Doman, and Stella-Jones as examples of firms with strong balance sheets and resilient margins. According to Swetlishoff, these companies are well-positioned to expand through mergers and acquisitions over the next 12 to 18 months. “The bad macro makes their targets quite attractive,” he said, “and we see them all growing their top and bottom lines through mergers and acquisitions.”
As negotiations between Canada and the U.S. approach, the leverage that Canada holds due to its role as a major supplier of softwood lumber will undoubtedly play a key role in shaping the outcome. While Canada remains heavily reliant on the U.S. market, the tariff dispute has also made it clear that the U.S. needs Canadian timber to meet domestic demand. For Canada, this dependence on softwood lumber presents a unique opportunity to influence trade talks and secure a more favourable agreement.
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Tags: Canada softwood lumber, Canadian exports, softwood lumber tariffs, U.S. trade negotiations, woodworking and manufacturing, woodworking industry
