Market Report: US Wood Tariffs and Their Impact on the Industry

Wood products markets are still very difficult, from veneer to finished products. The consistent refrain from our customers is that the year has not met projections. Some manufacturers are taking quiet downtime in the next couple of weeks as the Labor Day weekend approaches.

The housing market still has yet to show any signs of improvement. The survey of builder confidence has been low since the Fed started aggressive rate increases. The inventory of homes for sale hit a recent high of 9.3 months inventory. Mortgage rates dropped to 6.58%, the lowest level since last October. Freddie Mac has indicated that the lower rates, from a peak over 7%, has led to an improvement in purchase activity.

The Fed has been reluctant to lower rates until they understand the impact of tariffs on inflation, but the high rates are particularly damaging to the housing market. Polymarket is indicating a 72% chance of a 25 basis point drop at the end of September and only a 4% chance of a 50 basis point drop. The Trump administration is pushing for much more aggressive rate cuts by the Fed. Any easing will be helpful to get the US building again.

Tariffs seem to be the word of the day. Most wood products from Canada are tariff exempt under the USMCA. This includes veneer and panels. Lumber tariffs increased sharply in recent weeks, but that was already underway prior to the Trump Administration due to the long-standing dispute with Canada and the expiration of the Softwood Lumber Agreement. The Trump Administration has indicated that the USMCA will be renegotiated next year.

On March 1st , the Trump Administration also began a Section 232 investigation on the threat to national security of timber, lumber, and derivative product imports. The investigation is set to complete at the beginning of November and, depending on findings, a policy response is expected in December. RISI has indicated that their expected baseline scenario is a 25% tariff on all Chapter 44 goods under the Harmonized Tariff codes, meaning all wood products and their derivatives. However, these would not stack onto the existing tariffs.

As of August 6th, Brazil is subject to a 50% tariff rate which includes plywood and other laminated wood products. It is estimated that 1400 containers of plywood and lumber shipped from Brazil prior to the August 6th cutoff but as many as 1100 containers are still in port. These containers must be entered into customs prior to October 5th to be tariff exempt. Brazil plywood exports to the US increased 13% this year even while the US housing market suffered.

I think most businesses would agree that we are going to need policy consistency going forward. It is difficult to operate in an ‘on-again, off-again’ tariff environment. The last few months have been particularly painful for the wood products markets as foreign companies shipped to avoid future tariff rates.

Trump’s executive orders to encourage timber harvest and management are very appreciated, and we hope that they go through. We should note that the 25% increase in anticipated harvest is modest at best and will not make up for the draconian decreases of the last 30 years. Federal timber harvest would need to increase 10-fold just to get to 50% of historical harvest.

We anticipate that these executive orders will be litigated and it will take a while before there is any increase in domestic timber supply. If we can get beyond environmental legal issues, we might be able to return to an age of rural prosperity again. This would be very welcome.