Canada Poised to Leverage U.S. Lumber Dependence in Upcoming CUSMA Review Talks

Expert Sees Canadian Leverage in CUSMA Review

Canada is in a unique position to leverage the United States' ongoing need for softwood lumber during the upcoming review of the Canada-United States-Mexico Agreement (CUSMA), according to a prominent trade expert. Daryl Swetlishoff, senior managing director and head of Canadian research at Raymond James, highlighted this potential advantage as officials prepare for critical trade discussions in the new year. This perspective emerges despite the persistent imposition of U.S. tariffs on Canadian lumber products.

The Enduring Softwood Lumber Dispute

The trade relationship between Canada and the U.S. has been marked by the long-standing softwood lumber dispute, which dates back to 1982. The U.S. has historically accused Canadian provincial governments of unfairly subsidizing their lumber industry, leading to the imposition of various duties. As of April 7, 2025, Canadian softwood lumber entering the U.S. is subject to a combined tariff rate of 14.54%, comprising anti-dumping and countervailing duties. This rate was established by the U.S. Department of Commerce in August 2024, nearly doubling the previous rate of 8.05%. While a proposed additional 25% tariff in March 2025 was eventually exempted for lumber, preventing a significant increase to 39.5%, future tariff hikes, potentially reaching 27% or more, are anticipated by late 2025. Canada has consistently challenged these duties under CUSMA's Chapter 10, arguing they are unwarranted and unfair.

U.S. Reliance on Canadian Lumber

The United States faces a structural deficit in its softwood lumber supply, with domestic production unable to meet demand, particularly from its robust housing market. Canada serves as a critical supplier, providing approximately 25% to 30% of the U.S.'s total softwood lumber consumption and accounting for about 80% of all U.S. lumber imports. The U.S. housing market, often described as running 'on Canadian wood,' relies heavily on these imports. Experts note that even if the U.S. were to maximize its own harvesting, it would still fall short of domestic demand, underscoring the indispensable role of Canadian supply. This reliance creates a significant point of leverage for Canada in bilateral trade discussions.

CUSMA Review: A Strategic Opportunity

The mandatory six-year review of CUSMA is scheduled for 2026, with the review process expected to conclude by July 1, 2026. This review provides an opportunity for Canada, the U.S., and Mexico to decide on extending the agreement for another 16 years or to propose amendments. The U.S. initiated its internal review process in September 2025, with a report outlining its objectives expected to be submitted to Congress by January 2026. For Canada, whose forestry sector contributed over $34.8 billion to the country's GDP in 2021 and employs approximately 205,000 workers, these talks represent a crucial moment to address the ongoing lumber dispute and advocate for more stable trade conditions.