U.S. trade policies cast shadow of uncertainty over Canadian forestry industry

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U.S. President Donald Trump’s shifting trade policies are creating uncertainty for the Canadian forestry industry.

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Sean McLaren, president and chief executive of West Fraser Timber Co. Ltd., says the potential inflationary effects of tariffs could weigh on future demand.

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“Looking forward, we see considerable macroeconomic uncertainty, particularly stemming from the U.S. administration’s evolving tariff policies,” he said on a conference call Wednesday with financial analysts to discuss the forestry company’s latest results. He said the company is planning for multiple scenarios.

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U.S. tariffs on Canadian and Mexican imports went ahead on March 4, but were followed shortly after by an exemption on goods subject to the free trade agreement between Canada, the U.S. and Mexico.

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However, Trump wants to increase domestic lumber production and has directed the U.S. Commerce Department to investigate the potential harms lumber imports could pose to national security. The investigation will include looking at the extent to which domestic production of timber and lumber can meet domestic demand, and will look at whether measures like tariffs or quotas “are necessary to protect national security.”

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Trump also signed a separate order to possibly increase supplies of timber and lumber and possibly lower housing and construction costs.

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The department is also conducting its sixth administrative review of softwood lumber duties. RBC analyst Matthew McKellar said in a note Tuesday that if the department’s recent preliminary determination from that review goes ahead, countervailing duty rates will more than double for most producers.

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He said in a separate note that the outlook for the paper and forest products industry is highly uncertain when it comes to demand due to the rapidly evolving trade backdrop.

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“All of this uncertainty is bad for business,” said Derek Nighbor, president and CEO of Forest Products Association of Canada.

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Between likely higher duties on the way, the executive orders and the potential weight of tariffs on the economy, there’s a lot for companies to deal with, said Nighbor. A big part of the industry for Canadian lumber is tied to housing, he explained.

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“When we hear talk of a possible recession … that’s not good for consumer confidence, and so that’s not good for our industry,” he said.

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Nighbor said the U.S. gets about 70 per cent of the lumber it uses domestically, including from Canadian companies with U.S. operations. Around a quarter is imported from Canada, and the rest from other countries, mainly Europe.

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“We have these decades-long relationships and integrated supply chains,” he said. Builders in the U.S. also like Canadian lumber because it has different properties, he added.

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“You’d prefer to frame a house with Canadian lumber over Southern yellow pine … because it’s lighter and it’s stronger.”

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Nighbor added that any impact on Canadian lumber companies will also affect pulp and paper: “We’ve got all of these downstream industries that depend on those inputs.”