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Read our full analysis to understand how tariffs and policy uncertainty are moving through the wood products supply chain and shaping the 2026 market and beyond.
The North American wood products market entered 2026 carrying the strain of a difficult 2025. Weaker housing starts, modest repair and remodeling activity and declining furniture production kept demand under pressure across major product categories. Layered on top of that demand weakness is a shifting trade and policy backdrop that continues to move costs, supply and margins.
This is the third and final blog in our series on the three shocks shaping the wood products market. Here, we look at tariffs and policy uncertainty, comparing where the market stood in 2025 with what the 2026 outlook now shows.
In 2025, trade policy added clear financial pressure, especially for Canadian sawmills. Average duties on Canadian lumber shipped to the US rose from 14.38% to 35.19% last summer. A 10% Section 232 tariff was then implemented in October on all imports to the US, including Canadian supply. Canadian mills pay these duties as deposits to the US Department of Commerce, which raises production costs even though the deposits could eventually returned to mill operators following of comprehensive agreement between the US and Canadian softwood lumber industry.
The production response has been pronounced. After duties more than doubled in August, average monthly Canadian production fell off drammatically. Exports to the US were off even more, falling between 20-25% from trend levels before both higher duties and new 10% Section 232 tariffs kicked in.
This year, the picture is less about a single sharp increase and more about unresolved uncertainty. A Supreme Court ruling temporarily lifted IEEPA tariffs, but most goods still face tariffs under Section 122. A Section 301 investigation against Brazil was just released earlier this month, which will bring about an additional 25% tariffs on many products including, but not limited to, plywood, MDF and particleboard. While we seem to be arriving at a new order for trade for the US, sudden shifts due to court challenges and new investigation outcomes are keeping uncertainty elevated and putting pressure on home builder margins.
The effects reach different parts of the market in different ways.
Producers. Canadian mills face higher effective production costs due to increased duties and tariffs and industry rationalization, particularly in BC, is likely to continue. European and Latin American sawmills and panel mills are also grappling with higher Section 122, 232, 301 tariffs in an already challenging demand environment. US mill operators sit on the other side of this. They will likely continue to gain market share this year due to higher duties and protective measures, despite flat demand.
Wholesalers, traders and importers. This group is affected by tariff changes, shifting freight conditions and supply availability. There will be continued uncertainty around tariffs, even if less than in 2025, including Section 301 investigations and changes in IEEPA-related measures. Section 232 tariffs affect softwood timber and lumber, adding 10% duty. We expect offshore lumber supply, particularly from Europe, to be negatively affected by Section 232 tariffs. In 2025, US imports of offshore softwood lumber totaled 13.1 BBF, with Canada accounting for 80.1%, Germany 9.8%, Sweden 5.6%, Austria 1.6%, Brazil 1.4% and all others 1.5%. Although the United States is largely self-sufficient in its lumber supply, it still relies on imports for over a quarter of its consumption. Consequently, increased levies and subsequent supply restrictions will likely lead to higher softwood lumber prices in 2026.
Secondary manufacturers and housing-linked buyers. Most goods still face tariffs, placing further pressure on builder margins, including higher wood products prices. Moving forward, we expect lower real disposable income to undermine residential construction activity. Manufacturers tied to housing, interiors, furniture and related categories remain exposed to both slower end-use demand and ongoing cost pressure. Pallet prices are also pushing higher due to rising low-grade lumber costs, representing more cost-push inflation through the supply chain.
The 2026 outlook centers on a potential housing recovery that could face renewed headwinds. Inflation and interest rates remain the key variables, and policy feeds directly into builder margins and affordability.
Housing policy adds another layer. The White House has proposed affordability measures aimed at supporting demand, and Congress is considering supply-side reforms, including the ROAD to Housing Act. These measures are unlikely to materially improve demand in 2026, with their impact more likely to be felt in 2027 and 2028. Timing matters here. Policy may remain part of the market backdrop without materially improving current-year demand and some proposals, such as restrictions on build-to-rent, may even pose further headwinds until a clear picture prevails.
The forecast reflects this complex market dynamic. While we expect housing starts to see some fluctuations in the coming years, the repair and remodeling sector shows a more consistent upward trend.
Several policy signals will shape the path ahead. The outcomes of the Section 301 investigations and the status of tariffs on building materials will influence builder margins and the cost of offshore supplies, particularly from key regions like Europe.
On the supply side, capacity changes are becoming more important. Production in key North American regions already faces structural pressures and higher import levels compound these challenges. As a result, we expect overall capacity growth to be slow, further impacting the market. For a detailed breakdown of our forecasts and what these policy and supply changes mean for the industry, download the full report.
To explore how tariffs and policy uncertainty are shaping the wood products market in 2026 and beyond, read our guide to the North American wood products market.