New tariffs and Canadian countermeasures are ‘going to raise the cost of production for everyone’ including consumers, says wood market expert
New US tariffs on Canadian wood products threaten to raise construction costs for US homebuilders and squeeze supply chains already stretched thin as a potentially long and bruising trade war gets underway.
Sweeping new Section 338 tariffs cover a broad range of wood products from Canada including veneers, plywood, laminated veneer lumber (LVL), certain medium-density fiberboard (MDF) grades, and wood furniture – heaping further pressure on the US construction sector.
And while softwood lumber isn’t captured under the 338 duties (it continues to face existing 45% combined duties and tariffs), the new measures target an array of engineered and value-added wood products that US manufacturers depend on to build homes.
“Basically, the fact that there’s import tariffs on Canadian shipments to the US and vice versa is going to raise the cost of production for everyone, and that’s going to get passed on… ultimately through the housebuilder to the consumer,” wood market expert Russ Taylor (pictured top) told Mortgage Professional America.
American plywood and LVL producers rely significantly on Canadian inputs, Taylor said, and any disruption to that supply chain is unlikely to be absorbed quickly.
The full impact on homebuilders could take a few months to become clear but the direction of travel is clear, he said. “The builders either can’t find product or the prices go higher for certain products, and then that starts to influence homebuilders,” he said.
“Probably not right away – everyone’s got inventory to sell – but certainly looking ahead a couple of months from now, that’s when some shortages or stockouts could start to occur.”
Uncertainty could freeze the market
Fears of higher construction costs for US builders jumped last year as US-Canada trade tensions rose.
Homebuilder confidence posted a tiny improvement this month, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), but that gauge has now spent 16 months below the 40-point threshold, marking the longest spell since 2012.
Builder confidence is directly linked to homebuyer sentiment – and Taylor said uncertainty about potentially rising costs could destabilize the market in the months ahead as buyers and sellers on both sides of the border adopt a wait-and-see approach.
“Whenever there’s uncertainty, the buyers stop and the sellers stop and wait,” he said. “If the reciprocal tariffs go on, is there another round of tariffs on the US side? Then we have to wait and see what’s next. It doesn’t help the market.”
Mortgage rates have climbed in recent months, jumping to 6.66% in the week ending August 27, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS).
That brings the benchmark just three basis points below its highest reading of the year, threatening to weigh further on homebuyer sentiment and worsen the outlook for struggling builders.
Housing starts have also been sliding, while new home sales retreated in July – slipping by 10.5% from the previous month and continuing a long trend of year-over-year declines.
More pressure for housing market ‘just when you don’t need it’
The latest flurry of levies between the US and Canada is unlikely to ease homebuyer sentiment – and it remains unclear whether a further escalation could be ahead, with the two sides seemingly nowhere near a deal.
On Thursday, President Trump signed an executive order mandating that Lake Ontario be renamed Lake America and repeated frequent grievances against Canada, including his view that Canada “has been ripping us off for a long time” on trade.
Taylor sees little cause for optimism in the short term, describing the current environment as “a period of extreme uncertainty” that cuts across lumber, engineered wood products, furniture, and a growing list of other sectors.
Additional January 2027 tariff increases on items including upholstered furniture and certain auto parts are already adding to the crisis.
“It’s going to pressure the housing market just when you don’t need it,” he said. “And all this economic uncertainty – that’s going to undermine the confidence in the housing market.”
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