What are softwood lumber agreements?

Softwood lumber agreements (SLAs) are trade deals between the U.S. and Canada designed to regulate the flow of Canadian lumber into the U.S. market. These agreements aim to avoid trade disputes and ensure a level playing field for U.S. producers. Essentially, they set rules around how much lumber Canada can export and at what cost, often using quotas, taxes, or both.

The first major agreement dates back to the 1980s when U.S. lumber producers complained that Canadian timber was unfairly subsidized, making it cheaper to sell. Since then, multiple agreements have been signed, one of the most notable being the 1996 SLA. This deal introduced export fees and volume limits on Canadian lumber to address U.S. concerns and reduce tensions between the two countries.

Over the years, these agreements have been renegotiated and adjusted to address changing trade dynamics. Still, their goal has always been the same: maintaining stability in the lumber market while managing competition between Canadian and American producers.

Current export charges under SLAs

Under past SLAs, Canadian exporters had to pay export charges when the market price of lumber fell below a certain point. For example, if the price dropped to US$355 or less per thousand board feet, charges ranged from 5% to 15%, depending on the exact cost and the option chosen by the region.

However, the most recent SLA expired in 2015, and no new agreement has been implemented. Since then, the U.S. has simply applied tariffs on Canadian softwood lumber imports. As of August 2024, these tariffs increased from 8.05% to 14.54%.

Why the Trump tariffs are likely to make little difference in the lumber industry

Tariffs on Canadian softwood lumber might sound like they’d shake up the market, but the reality is far more nuanced. The industry has weathered tariffs before, and it’s built to adapt. For starters, lumber prices are influenced more by supply and demand than by tariffs. Factors like housing starts, natural disasters, and global trade shifts have a more significant impact on pricing than a 10-15% tariff hike.

Another reason tariffs don’t hit as hard is that the market has adjusted over time. U.S. producers have ramped up their capacity to meet demand, reducing reliance on Canadian imports. At the same time, Canadian exporters have diversified, sending more lumber to Europe and Asia, where tariffs don’t apply.

In many cases, the added cost of tariffs is absorbed at different points in the supply chain. Distributors, builders, and even consumers may share the burden, but the increase is often spread thin enough to avoid dramatic disruptions. This balance makes tariffs less of a game-changer than they might appear on paper.

What does this mean for construction and housing?

For construction and housing, tariffs on Canadian lumber increase material costs, but the overall impact is manageable relative to a project’s total cost. Builders and developers are accustomed to dealing with fluctuations in material prices, whether from tariffs or other market forces, so the industry has strategies to minimize disruptions.

The National Association of Home Builders (NAHB) estimated that past tariff hikes increased the cost of constructing a single-family home by nearly $9,000. While this increase is notable, it represents a small fraction of the overall expense, especially in markets where new homes can cost hundreds of thousands, if not millions, of dollars. 

The construction industry has also explored alternatives in response to higher lumber prices. Materials like engineered wood, steel, and even prefabricated components are being used more frequently, which helps to offset some of the reliance on traditional softwood lumber. This diversification reduces the long-term impact of tariffs on building projects.

Final thoughts

While tariffs on Canadian softwood lumber have grabbed headlines, their impact on the industry is more muted than many might expect. The lumber market is influenced more by broader economic trends, like high interest rates and labor shortages, than by tariffs. So, while tariffs might add a bit of cost, they’re just one piece of a much bigger puzzle.

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Here’s the reality: immigrants are the backbone of construction. In 2022, they made up about 25% of all construction workers across the U.S. and an even higher 31% of skilled tradespeople. That number jumps to over 40% in states like California and Texas.

And let’s not forget the impact of undocumented workers. They make up a significant part of this labor force, with around 1.5 million undocumented immigrants working in construction—about 13% of the entire workforce. That’s a huge piece of the puzzle that could be at risk.

Potential impact of mass deportations

Taking a huge chunk of workers out of the construction industry would make a tough situation even worse. Labor shortages are already a major challenge, and things could spiral further. In fact, the Associated Builders and Contractors Trade Association estimates the industry will need nearly 454,000 new workers by 2025 just to keep up with demand.

Competition for qualified workers could increase labor costs if the workforce shrinks dramatically. And when costs rise, construction slows down—projects take longer, housing becomes more expensive, and infrastructure upgrades get delayed. That’s a domino effect the economy doesn’t need.

It’s also important to remember that undocumented workers aren’t just contributing their labor but also paying taxes. Billions of dollars in federal, state, and local taxes come from undocumented immigrants working in construction and their households.

Addressing illegal immigration is no simple task, but the economic ripple effects of mass deportations could hit the construction industry hard. With labor shortages already putting pressure on the sector, this kind of disruption could create serious challenges for both construction and the broader economy—especially as we work to tackle housing shortages and build essential infrastructure.

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