Trump 2.0 Proposed Tariff
Trump 2.0 Proposed Tariff: A Glance at the Wood Products Sector
by
Dr. Abdallah Akintola, Dr. Indroneil Ganguly, Dr. Badrinarayan Gopalakrishnan, and Dr. Kent Wheiler
Dr. Abdallah Akintola, Dr. Indroneil Ganguly, Dr. Badrinarayan Gopalakrishnan, and Dr. Kent Wheiler
Corresponding author: I. Ganguly |Email: [email protected]
Introduction
Recent discussions on proposed tariffs by President Trump, during his campaign have gained significant traction as relating to trade dynamics of the United States with the world. In January 2025, President Trump announced plans to impose a 25% tariff on imports from Canada and Mexico, a 10% tariff on all U.S. imports, and a 60% tariff on Chinese goods, with the objective of strengthening domestic industries and rectifying trade imbalances. These policies are anticipated to impact the U.S. wood products sector. However, retaliatory tariffs would likely have a much larger impact on the US wood products sector.
Compounding this sitution, major trading partners targeted by these tariffs will likely retaliate with tariffs on U.S. exports. Such responses could significantly impact the U.S. economy, particularly in export-dependent sectors, potentially negating any benefits from the original tariffs. For the wood products sector, this presents a dual challenge: increased input costs from import tariffs and reduced export competitiveness due to foreign countermeasures.
Simplified assumptions used for this modeling exercise
While the Trump administration has yet to confirm the 10% tariffs on global imports, it unequivocally indicated that it would impose a 25% tariff on Canadian and Mexican imports. In response, both the Canadian and Mexican counterparts have threatened retaliatory tariffs on US imports. Hence, in this report, we focus on Canada and Mexico and the possibility of matching retaliatory tariffs.
The U.S. wood products industry is closely integrated with Canadian and Mexican markets, with substantial volumes of lumber and related materials crossing borders daily. Implementing a 25% tariff on these imports is expected to elevate production costs for U.S. manufacturers, where they use Canadian or Mexican imports as raw materials, resulting in higher consumer prices and potential disruptions in the wood market supply chain. The reduced supply would also put upward pressure on wood prices for domestic consumers. Such economic shifts could negatively influence the housing market, the construction industry, and other sectors dependent on wood products. Additionally, these tariffs raise important questions about their broader economic implications, particularly for the wood sector, which is crucial for both the economy and the environment.
Introduction
Recent discussions on proposed tariffs by President Trump, during his campaign have gained significant traction as relating to trade dynamics of the United States with the world. In January 2025, President Trump announced plans to impose a 25% tariff on imports from Canada and Mexico, a 10% tariff on all U.S. imports, and a 60% tariff on Chinese goods, with the objective of strengthening domestic industries and rectifying trade imbalances. These policies are anticipated to impact the U.S. wood products sector. However, retaliatory tariffs would likely have a much larger impact on the US wood products sector.
Compounding this sitution, major trading partners targeted by these tariffs will likely retaliate with tariffs on U.S. exports. Such responses could significantly impact the U.S. economy, particularly in export-dependent sectors, potentially negating any benefits from the original tariffs. For the wood products sector, this presents a dual challenge: increased input costs from import tariffs and reduced export competitiveness due to foreign countermeasures.
Simplified assumptions used for this modeling exercise
While the Trump administration has yet to confirm the 10% tariffs on global imports, it unequivocally indicated that it would impose a 25% tariff on Canadian and Mexican imports. In response, both the Canadian and Mexican counterparts have threatened retaliatory tariffs on US imports. Hence, in this report, we focus on Canada and Mexico and the possibility of matching retaliatory tariffs.
The U.S. wood products industry is closely integrated with Canadian and Mexican markets, with substantial volumes of lumber and related materials crossing borders daily. Implementing a 25% tariff on these imports is expected to elevate production costs for U.S. manufacturers, where they use Canadian or Mexican imports as raw materials, resulting in higher consumer prices and potential disruptions in the wood market supply chain. The reduced supply would also put upward pressure on wood prices for domestic consumers. Such economic shifts could negatively influence the housing market, the construction industry, and other sectors dependent on wood products. Additionally, these tariffs raise important questions about their broader economic implications, particularly for the wood sector, which is crucial for both the economy and the environment.
Two scenarios explored are as follows:
Scenario 1: A 25% tariff on all products from Canada and Mexico (Tariff25per)*
Scenario 2: A 25% tariff on all products from Canada and Mexico along with the corresponding retaliation from Canada and Mexico of 25% tariff (Retaliation25per)*
Note: * Tariff25per and Retaliation25per are used in denoting Scenario 1 and 2 respectively in the table and figure
Scenario 1: A 25% tariff on all products from Canada and Mexico (Tariff25per)*
Scenario 2: A 25% tariff on all products from Canada and Mexico along with the corresponding retaliation from Canada and Mexico of 25% tariff (Retaliation25per)*
Note: * Tariff25per and Retaliation25per are used in denoting Scenario 1 and 2 respectively in the table and figure
Methodology
This report employs a Computable General Equilibrium (CGE) model with Global Trade Analysis Project (GTAP) to evaluate the economic impact of the proposed tariffs and potential retaliatory actions on the wood sector. By concentrating on the wood products sector, the analysis aims to provide lawmakers with a comprehensive understanding of the anticipated outcomes, including changes in production, trade, and Gross Domestic Products (GDP). The GTAP model facilitates an in-depth simulation of trade policies, projecting key outcomes such as shifts in production, consumption, trade flows, and prices within the wood products industry.
The Computational General Equilibrium modeling framework of the GTAP was utilized in this analysis. A GTAP Model is a multi-region, multisector, , with standard economic assumptions such as perfect competition and constant returns to scale. The GTAP framework is used to assess a wide range of issues including those in international trade, public finance, tax policies, technological changes, public health, labor issues, energy/environment, and climate change. Such a model captures supply-chain effects, macro-economic aspects, economy-wide equilibrium constraints, linkages between different sectors and countries as well as factor use effects of different commodities. The model developed in this report is a detailed extension of the standard GTAP model and the latest version of GTAP Data Base, which has been further updated to the year 2023. The standard GTAP database comprises 65 sectors. For our analysis, we aggregated the non-wood sectors and further consolidated the wood-related sectors to emphasize the wood sectors. As a result, we modeled 19 disaggregated wood-related sectors and 14 aggregated non-wood sectors, covering all sectors of the economy. Given the focus on the forest products sector, we only present the wood-related sector results in this analysis.
This report employs a Computable General Equilibrium (CGE) model with Global Trade Analysis Project (GTAP) to evaluate the economic impact of the proposed tariffs and potential retaliatory actions on the wood sector. By concentrating on the wood products sector, the analysis aims to provide lawmakers with a comprehensive understanding of the anticipated outcomes, including changes in production, trade, and Gross Domestic Products (GDP). The GTAP model facilitates an in-depth simulation of trade policies, projecting key outcomes such as shifts in production, consumption, trade flows, and prices within the wood products industry.
The Computational General Equilibrium modeling framework of the GTAP was utilized in this analysis. A GTAP Model is a multi-region, multisector, , with standard economic assumptions such as perfect competition and constant returns to scale. The GTAP framework is used to assess a wide range of issues including those in international trade, public finance, tax policies, technological changes, public health, labor issues, energy/environment, and climate change. Such a model captures supply-chain effects, macro-economic aspects, economy-wide equilibrium constraints, linkages between different sectors and countries as well as factor use effects of different commodities. The model developed in this report is a detailed extension of the standard GTAP model and the latest version of GTAP Data Base, which has been further updated to the year 2023. The standard GTAP database comprises 65 sectors. For our analysis, we aggregated the non-wood sectors and further consolidated the wood-related sectors to emphasize the wood sectors. As a result, we modeled 19 disaggregated wood-related sectors and 14 aggregated non-wood sectors, covering all sectors of the economy. Given the focus on the forest products sector, we only present the wood-related sector results in this analysis.
Discussions:
Figure 1. Impact on Real GDP
GDP
The escalation of tariffs can lead to increased uncertainty in trade relationships, with impacts affecting investment decisions and economic growth. The U.S. remains largely insulated in both scenarios (Fig. 1). For Canada, the 25% tariff by the U.S. leads to a 1.1% decline in the Canadian GDP, and retaliation exacerbates the impact, resulting in a 1.75% contraction of the Canadian economy. Mexico would experience a similar consequence, with a 0.5% decrease in its GDP from the 25% U.S. tariff on Mexican imports to the US, and a more significant 1.48% contraction when a retaliatory measure is in place by Mexico. In contrast, the U.S. sees a minimal impact, both from the 25% tariff on Canadian and Mexican Imports (-0.08%) and matching retaliatory tariffs by Canada and Mexico on US imports (-0.18%). As a result of the tariffs and counter-tariffs, there are no winners at the macroeconomic level, with all three countries becoming adversely affected. However, the results suggest that the imposed tariffs would hurt the Canadian and Mexican economies more, with a shrinkage that could destabilize their economies. Given the diversification of the US economy, the US GDP will be impacted less severely, demonstrative relative resilience.
The escalation of tariffs can lead to increased uncertainty in trade relationships, with impacts affecting investment decisions and economic growth. The U.S. remains largely insulated in both scenarios (Fig. 1). For Canada, the 25% tariff by the U.S. leads to a 1.1% decline in the Canadian GDP, and retaliation exacerbates the impact, resulting in a 1.75% contraction of the Canadian economy. Mexico would experience a similar consequence, with a 0.5% decrease in its GDP from the 25% U.S. tariff on Mexican imports to the US, and a more significant 1.48% contraction when a retaliatory measure is in place by Mexico. In contrast, the U.S. sees a minimal impact, both from the 25% tariff on Canadian and Mexican Imports (-0.08%) and matching retaliatory tariffs by Canada and Mexico on US imports (-0.18%). As a result of the tariffs and counter-tariffs, there are no winners at the macroeconomic level, with all three countries becoming adversely affected. However, the results suggest that the imposed tariffs would hurt the Canadian and Mexican economies more, with a shrinkage that could destabilize their economies. Given the diversification of the US economy, the US GDP will be impacted less severely, demonstrative relative resilience.
Given its heavy dependence on US markets, Canada will suffer the most. A 1.1% decline in the Canadian economy will be enough to push the country to the brink of a recession, as Canada’s GDP growth was around 1.1% in 2023. Canada's retaliatory tariff on US goods and the resultant economic decline of 1.75% will likely push the country into a recession.
Wood products' sectorial impact on the United States
When we look at the country as a whole, the wood products sector in the US would generally benefit from the 25% tariffs on Canadian and Mexican imports. In most of the wood products categories, the 25% tariff results in an increase in the US’s domestic output (Table 1a). However, the reduction in imports because of tariffs and counter-tariffs far outweighs the domestic output increases. Canada is a major supplier of wood products to the US, including softwood lumber, Oriented Strand Board (OSB), Plywood, and other engineered wood products. The tariff on these products will directly translate to a price increase for US consumers. It also may be noted that a handful of sawmills (e.g., some hardwood mills) and some engineered wood products manufacturers (e.g., mass timber mills) in Washington import a small proportion of their raw material from Canada; they may experience a supply shortage, at least in the short term. These supply shortages will also put pressure on the prices of wood products for US consumers.
These price increases would incentivize increased domestic production of those materials. Most of these gains will be experienced by the southeastern states of the United States, where they have available wood fiber to meet the demand. However, it is unlikely that the southern mills will be able to ramp up production over the next few years to offset these supply shortages. Given the supply shortage-related price increases and tariff-related price increases. Despite the existing production capacity, the Pacific Northwest has a limited ability to increase its production due to a constrained supply of wood fiber from the federal forests. Any decline in wood supply from the State forests could even exacerbate the supply constraints.
Given Washington's heavy dependence on imported Canadian wood products, like softwood lumber and OSB, the housing sector in WA will be adversely impacted by these tariffs. Increases in the prices of wood-based construction products and reduced supply would put upward pressure on housing prices, which could adversely impact regional housing starts.
When we look at the country as a whole, the wood products sector in the US would generally benefit from the 25% tariffs on Canadian and Mexican imports. In most of the wood products categories, the 25% tariff results in an increase in the US’s domestic output (Table 1a). However, the reduction in imports because of tariffs and counter-tariffs far outweighs the domestic output increases. Canada is a major supplier of wood products to the US, including softwood lumber, Oriented Strand Board (OSB), Plywood, and other engineered wood products. The tariff on these products will directly translate to a price increase for US consumers. It also may be noted that a handful of sawmills (e.g., some hardwood mills) and some engineered wood products manufacturers (e.g., mass timber mills) in Washington import a small proportion of their raw material from Canada; they may experience a supply shortage, at least in the short term. These supply shortages will also put pressure on the prices of wood products for US consumers.
These price increases would incentivize increased domestic production of those materials. Most of these gains will be experienced by the southeastern states of the United States, where they have available wood fiber to meet the demand. However, it is unlikely that the southern mills will be able to ramp up production over the next few years to offset these supply shortages. Given the supply shortage-related price increases and tariff-related price increases. Despite the existing production capacity, the Pacific Northwest has a limited ability to increase its production due to a constrained supply of wood fiber from the federal forests. Any decline in wood supply from the State forests could even exacerbate the supply constraints.
Given Washington's heavy dependence on imported Canadian wood products, like softwood lumber and OSB, the housing sector in WA will be adversely impacted by these tariffs. Increases in the prices of wood-based construction products and reduced supply would put upward pressure on housing prices, which could adversely impact regional housing starts.
Wood products’ sectoral impacts on Canada and Mexico
The sectorial output table (Table 1a and 1b) reveals distinct patterns in the economic consequences of the 25% tariff and retaliation. Notably, Canada faces severe declines in several sectors, particularly Veneer, Other Lumber, and OSB (-5.86). Conversely, there was positive output growth in Canada in Other Particle Board, Pulp, and Other Print Publishing, suggesting some resilience. Mexico shows significant domestic growth in output because of the tariffs. For example, the MDF and HDF (25.86), OSB (25.34), and Pellets (26.56) sectors experienced substantial growth in Mexico due to retaliation. This suggests that Mexico may be capitalizing on the tariff situation to strengthen its position in the lumber and forestry markets. It highlights the potential to emerge as a competitive player by benefiting from shifts in trade dynamics resulting from the tariff war. This might lead to supply chain adjustment where consumers in Canada may seek to diversify their sources by looking to Mexico as a viable alternative for specific wood products, especially if they face high costs from U.S. suppliers. Most of the US sectorial output showed minimal declines after retaliatory measures by Canada and Mexico. This trend shows a possible repeat of a chaotic impact on the wood sector of what was witnessed years back during the US-China trade war. Other countries would tend to gain more from this perspective.
The sectorial output table (Table 1a and 1b) reveals distinct patterns in the economic consequences of the 25% tariff and retaliation. Notably, Canada faces severe declines in several sectors, particularly Veneer, Other Lumber, and OSB (-5.86). Conversely, there was positive output growth in Canada in Other Particle Board, Pulp, and Other Print Publishing, suggesting some resilience. Mexico shows significant domestic growth in output because of the tariffs. For example, the MDF and HDF (25.86), OSB (25.34), and Pellets (26.56) sectors experienced substantial growth in Mexico due to retaliation. This suggests that Mexico may be capitalizing on the tariff situation to strengthen its position in the lumber and forestry markets. It highlights the potential to emerge as a competitive player by benefiting from shifts in trade dynamics resulting from the tariff war. This might lead to supply chain adjustment where consumers in Canada may seek to diversify their sources by looking to Mexico as a viable alternative for specific wood products, especially if they face high costs from U.S. suppliers. Most of the US sectorial output showed minimal declines after retaliatory measures by Canada and Mexico. This trend shows a possible repeat of a chaotic impact on the wood sector of what was witnessed years back during the US-China trade war. Other countries would tend to gain more from this perspective.
Figure 2. Trade Impact (Real Exports and Imports)
Impacts on Trade
The imposition of US 25% tariffs and subsequent retaliations highlights varying sensitivities of these countries to tariff policies and retaliation, with Canada and Mexico facing more pronounced challenges in both imports and exports compared to the USA (Figure 2).
For imports, Canada faces the most substantial declines, with a -19.25% drop under the initial tariff and worsening to -25.53% with retaliatory measures. Mexico experiences the most significant drop in imports. The USA’s import reductions are relatively smaller at 3.31% under the tariff and 7.46% under retaliation. The minimal impact on the US overall imports can be a result of the need to satisfy domestic demands. Higher tariffs increase the cost of imported goods, making them less competitive compared to domestic products. As a result, buyers from the US, Canada, and Mexico may seek alternatives from outside the region or reduce their purchases of imported items thus leading to a decline in overall import volumes. In terms of exports, Canada and the USA also face negative impacts. A different picture is highlighted when considering the wood exports and imports by sector (Table 2 and 3). In the US, virtually all the wood sectors experienced a decline in exports, and more decline was estimated following retaliatory tariffs by Canada and Mexico. This is because most domestic output is directed toward meeting domestic demand. Canada also experiences sharp declines in exports for several sectors.
In contrast, Mexico shows significant growth in most wood sectors. Notably, Mexico's wood sectors would be better off if retaliatory measures were not imposed on US imports. The resilience of Mexico's wood sector aligns with its overall export growth despite tariffs, as seen in previous sector output discussions. Overall, the consistent decline in imports across all sectors in the USA, Canada, and Mexico highlights the significant trade disruptions caused by tariffs. The US imports appear not to be impacted as much compared to Canada and Mexico (Table 3). This can be partly due to the diverse US trade network and strong domestic demand.
The imposition of US 25% tariffs and subsequent retaliations highlights varying sensitivities of these countries to tariff policies and retaliation, with Canada and Mexico facing more pronounced challenges in both imports and exports compared to the USA (Figure 2).
For imports, Canada faces the most substantial declines, with a -19.25% drop under the initial tariff and worsening to -25.53% with retaliatory measures. Mexico experiences the most significant drop in imports. The USA’s import reductions are relatively smaller at 3.31% under the tariff and 7.46% under retaliation. The minimal impact on the US overall imports can be a result of the need to satisfy domestic demands. Higher tariffs increase the cost of imported goods, making them less competitive compared to domestic products. As a result, buyers from the US, Canada, and Mexico may seek alternatives from outside the region or reduce their purchases of imported items thus leading to a decline in overall import volumes. In terms of exports, Canada and the USA also face negative impacts. A different picture is highlighted when considering the wood exports and imports by sector (Table 2 and 3). In the US, virtually all the wood sectors experienced a decline in exports, and more decline was estimated following retaliatory tariffs by Canada and Mexico. This is because most domestic output is directed toward meeting domestic demand. Canada also experiences sharp declines in exports for several sectors.
In contrast, Mexico shows significant growth in most wood sectors. Notably, Mexico's wood sectors would be better off if retaliatory measures were not imposed on US imports. The resilience of Mexico's wood sector aligns with its overall export growth despite tariffs, as seen in previous sector output discussions. Overall, the consistent decline in imports across all sectors in the USA, Canada, and Mexico highlights the significant trade disruptions caused by tariffs. The US imports appear not to be impacted as much compared to Canada and Mexico (Table 3). This can be partly due to the diverse US trade network and strong domestic demand.
Conclusion
The proposed tariffs under President Trump's administration present significant implications for the U.S. wood sector, particularly concerning trade dynamics with Canada and Mexico. While the intent is to bolster domestic industries and rectify trade imbalances, the anticipated consequences reveal a complex landscape. The 25% tariffs, coupled with retaliatory measures, are likely to elevate product prices, disrupt supply chains, and negatively impact sectors dependent on imported wood products.
Notably, while Canada and Mexico face substantial declines in GDP and sector outputs, the U.S. economy appears relatively insulated, with minimal impacts on GDP. However, this insulation should not lead to complacency. The declining import volumes and the potential for retaliatory tariffs could disrupt the intricate interdependencies that define North American trade. The long-term standing of US wood products can further deteriorate in the global market as a result of these tariffs, similar to what we experienced in post-US-China trade war.
Moreover, Mexico's ability to capitalize on the tariff situation presents a strategic challenge, as it may emerge as a more competitive player in the wood market. As policymakers, it is crucial to consider the long-term ramifications of these tariffs, not only for immediate economic impacts but also for fostering sustainable trade relationships. A balanced approach that promotes domestic growth while mitigating adverse effects on trade partners may yield more favorable outcomes for all stakeholders in the wood sector.
The proposed tariffs under President Trump's administration present significant implications for the U.S. wood sector, particularly concerning trade dynamics with Canada and Mexico. While the intent is to bolster domestic industries and rectify trade imbalances, the anticipated consequences reveal a complex landscape. The 25% tariffs, coupled with retaliatory measures, are likely to elevate product prices, disrupt supply chains, and negatively impact sectors dependent on imported wood products.
Notably, while Canada and Mexico face substantial declines in GDP and sector outputs, the U.S. economy appears relatively insulated, with minimal impacts on GDP. However, this insulation should not lead to complacency. The declining import volumes and the potential for retaliatory tariffs could disrupt the intricate interdependencies that define North American trade. The long-term standing of US wood products can further deteriorate in the global market as a result of these tariffs, similar to what we experienced in post-US-China trade war.
Moreover, Mexico's ability to capitalize on the tariff situation presents a strategic challenge, as it may emerge as a more competitive player in the wood market. As policymakers, it is crucial to consider the long-term ramifications of these tariffs, not only for immediate economic impacts but also for fostering sustainable trade relationships. A balanced approach that promotes domestic growth while mitigating adverse effects on trade partners may yield more favorable outcomes for all stakeholders in the wood sector.
Tables