A new 10% tariff on softwood lumber imports from Canada, announced this week by the Trump administration, has pushed the total levy on Canadian wood exports to the U.S. to a steep 45%. The move intensifies long-running trade tensions and is expected to squeeze profitability and competitiveness for major Canadian producers such as West Fraser Timber (TSX:WFG), Canfor (TSX:CFP), and Stella-Jones (TSX:SJ).
The Canadian lumber sector, which sends more than half of its production to the United States, now faces significantly higher export costs and potential mill closures or output cuts. On the Toronto Stock Exchange, lumber stocks have already felt the pressure: West Fraser and Canfor have each declined roughly 25% over the past year, even as the broader Canadian market reached record highs.
But the pain may not be confined to Canada. U.S. homebuilders have voiced strong opposition to the tariffs, warning that they will raise construction costs and further dampen housing affordability. According to Ben Isaacson, an analyst at Scotiabank, replacing Canadian lumber under normal demand conditions would require about 50 new U.S. mills—a practical impossibility given that specialized equipment suppliers can only support about two new facilities per year.
Despite the bleak outlook, some Canadian producers are positioning for a rebound. West Fraser, for example, reported a slump in Q2 2025 adjusted EBITDA to C$84 million, with lumber contributing just C$15 million. Still, the company maintains a robust balance sheet, with nearly C$1.7 billion in available liquidity and a net cash position of C$310 million. Analysts project that West Fraser could reach an adjusted EPS of C$10 by 2029—which, at a forward P/E of 15, suggests potential for a 65% total return over four years.
Canfor, meanwhile, is pursuing geographic diversification to reduce its exposure to U.S. trade policy. Its pending acquisition of three Swedish sawmills would balance its production profile to about 35% U.S. South, 35% Sweden, and 30% Western Canada. Though the company is expected to post a loss per share of C$3.07 in 2025, analysts forecast a rebound to C$3.59 in EPS by 2029—implying a potential tripling of its share price if valued at 10 times forward earnings.
As the softwood lumber dispute enters a new chapter, market participants on both sides of the border are bracing for more volatility—with Canadian producers searching for a path through the trade turmoil.
