Canada’s forest-products industry has spent years talking about diversification.

Sell more lumber outside the United States.

Develop higher-value wood products.

Move pulp mills into biomaterials.

Automate older plants.

Reduce freight and operating costs.

Extract more value from every cubic metre of fiber.

Those strategies remain necessary.

But when a 50% tariff appears almost overnight on parts of the forest-products portfolio, they confront an uncomfortable reality:

you cannot diversify a mill’s customer base as quickly as a tariff can remove its margin.

That is the problem behind the Forest Products Association of Canada’s support for Ottawa’s latest tariff-response package.

On August 25, FPAC welcomed new federal measures for companies, workers and communities affected by the escalating Canada-U.S. trade conflict. President and CEO Derek Nighbor said duties and tariffs affecting billions of dollars of Canadian forest products were now ranging from 25% to 85%, arguing that immediate support was necessary to keep facilities operating and workers attached to their jobs.

The federal government announced $7.5 billion in new and enhanced support, including additional liquidity programs, worker assistance and funding for companies trying to diversify or modernize.

That sounds substantial.

It is.

But FPAC’s own statement contains the more important warning:

the value of a support package is determined less by the headline amount than by how quickly a mill can actually access the money.

For a capital-intensive industry with high fixed costs, that difference can determine whether financial support arrives before or after a production curtailment.

The Tariff Shock Is Not One Tariff

The first thing to understand is that Canada’s forest sector does not face one simple U.S. duty.

Different products sit under different trade measures.

Canadian softwood lumber has long faced U.S. anti-dumping and countervailing duties.

For the current “all others” category under the sixth administrative review, those duties combine to approximately 35.16%. Canfor’s combined rate is 47.65%, while West Fraser’s is 26.47%.

On top of that, the United States imposed a 10% Section 232 tariff on softwood lumber and timber beginning in October 2025. Section 232 also applies 25% tariffs to certain upholstered furniture, kitchen cabinets and vanities.

Then came Section 338.

On August 22, 2026, 50% additional tariffs took effect on a broad range of Canadian products after a short postponement expired. Several wood, paper and value-added forest products were included.

But an important technical detail is often lost in the headlines:

products already subject to Section 232 are excluded from Section 338.

That means most softwood lumber does not simply receive another 50 percentage points on top of its Section 232 tariff.

Other wood and paper products that are not covered by Section 232 can be subject to the new 50% Section 338 tariff, and applicable trade-remedy duties may still apply depending on the product.

That is why FPAC’s 25%-to-85% figure should be understood as a description of the range of pressures across the sector—not as a tariff rate imposed uniformly on every tonne of Canadian forest products.

Pulp and Paper Are Now Much More Directly Exposed

For the pulp and paper sector, the escalation is particularly notable.

The long-running softwood lumber dispute is familiar territory.

Pulp, paper and tissue products are now much more visibly drawn into the broader tariff conflict.

Canada’s retaliatory tariff list, which mirrors products targeted by the United States, includes items such as dissolving pulp, tissue and towel stock, kraft paper and coated graphic paper at rates of 25% or 50%, depending on the tariff line.

That matters because these are not interchangeable commodity streams.

A dissolving-pulp producer serving specialty cellulose customers cannot simply redirect tonnes into the same market as a tissue-pulp producer.

A coated-paper machine cannot instantly become a containerboard machine.

And a mill designed around a particular export geography cannot rebuild its customer portfolio in a few months.

This is where the phrase “market diversification” becomes more difficult than it sounds.

Diversification Is a Long-Term Strategy. Tariffs Are a Short-Term Cash Problem.

Suppose a mill loses margin on U.S. shipments this month.

It still has to pay:

wood suppliers,

employees,

electricity and gas bills,

chemicals,

rail and trucking costs,

maintenance,

insurance,

and debt service.

A new Asian customer may eventually replace some U.S. volume.

But first the producer has to qualify the grade.

Negotiate price.

Secure freight.

Potentially modify packaging.

Build inventories.

Establish payment terms.

And prove that the economics still work after transportation.

That can take months or years.

The mill’s payroll is due much sooner.

This is why Ottawa’s package contains both liquidity support and transformation funding.

They solve different problems.

Liquidity asks:

Can the company survive the immediate disruption?

Transformation asks:

Can the company become less vulnerable the next time this happens?

Confusing those two objectives leads to bad industrial policy.

A five-year modernization program will not solve next month’s working-capital problem.

A short-term loan will not make an uncompetitive mill globally competitive.

What Is Actually Inside the $7.5 Billion Package?

The August 25 federal package includes an additional $1.5 billion for the Regional Tariff Response Initiative, delivered through Canada’s regional development agencies.

It also includes a $500 million BDC liquidity stream under the Pivot to Grow program, with broader access to tariff-related BDC programs.

Another $2 billion is being directed through the new Canada Strong Diversification Fund to support projects including capital maintenance and diversification.

The government also announced $3.5 billion in Rapid Response Supports for Workers and Employers, alongside new flexibility under the Large Enterprise Tariff Loan facility.

That mix matters.

Not every mill needs the same intervention.

One producer may need temporary working capital.

Another may need money to rebuild equipment and lower unit cost.

Another may already be technically competitive but needs assistance opening a new market.

Another may no longer be viable and require worker-transition support instead.

This is precisely why FPAC emphasized accessibility and the ability of programs to respond to different circumstances across the forest-products value chain.

We Already Have One Pulp-Mill Test Case

The strongest indication of how the federal response may work in practice came one day after FPAC’s statement.

On August 26, Ottawa announced $20 million for Mercer Peace River Pulp in Alberta through the Regional Tariff Response Initiative.

Of that amount, $19 million is repayable and $1 million is non-repayable.

This is worth examining because the money is not simply being used to compensate the mill for tariff losses.

The investment will support projects including:

heavy black-liquor piping upgrades;

pulp-machine roll rebuilding;

lime-kiln improvements;

and recovery-boiler upgrades.

The government says these investments are intended to improve operating efficiency, reduce production costs and help the mill move toward a more profitable hardwood-softwood pulp mix.

That is a much more interesting model than simply reimbursing lost export revenue.

The tariff creates the urgency, but the capital is being used to attack the mill’s cost structure.

If those investments work, their value continues after the tariff dispute ends.

That Is What Good Crisis Support Should Try to Do

There are two possible ways to respond to an industrial shock.

The first is defensive:

cover the loss.

The second is transitional:

use the emergency to make an asset more competitive.

Mercer Peace River provides an early example of the second approach.

The mill directly employs around 360 people and supports an estimated 3,000 jobs through the regional forest-products supply chain. It also consumes hardwood associated with the regional sawmilling system.

If such a mill curtails production, the effect therefore moves beyond pulp employees.

Logging contractors feel it.

Sawmills lose a destination for incidental fiber.

Truckers lose loads.

Chemical suppliers lose volume.

Municipal tax bases weaken.

This is why keeping a mill running through a temporary market shock can have an economic value far beyond the mill gate.

But the word temporary is important.

Public support becomes harder to justify if it indefinitely protects production that remains structurally uneconomic.

The real test is whether the investment helps the operation reach a more durable cost position.

B.C. Is Showing Why FPAC Focused on Speed

FPAC said support would only be effective if companies could reach it quickly.

By September 8, British Columbia companies were able to apply for the expanded Regional Tariff Response Initiative through PacifiCan.

Eligible B.C. businesses can access up to $3 million in non-repayable support, including up to $2 million for liquidity and up to $1 million for pivot projects. Larger transformation projects can also access repayable funding above $1 million.

That matters because program design can become a hidden industrial bottleneck.

If a mill facing an immediate export shock has to spend six months navigating eligibility criteria, the assistance may arrive too late.

If the application system is too narrow, companies may shape investments around government rules rather than their actual operating problem.

And if funding is designed primarily for small companies, large mills with much greater employment exposure can fall between programs.

This is why the execution of the package now matters more than the announcement.

Canada Was Already Trying to Transform Forestry Before Section 338

The tariff response also needs to be separated from another initiative already underway.

In June, Ottawa launched a broader Forest Sector Action Plan built around four priorities:

securing predictable fiber supply;

modernizing and innovating;

expanding Canadian and international markets;

and supporting workers and communities through transition.

The government says it had already introduced more than $2 billion in forest-sector measures since August 2025, before the latest Section 338 escalation.

That is important context.

Canada’s forest-sector problems did not begin on August 22.

FPAC itself points to:

longstanding softwood duties;

weak U.S. markets;

rising operating costs;

transportation problems;

and domestic competitiveness constraints.

Tariffs amplify those weaknesses.

They do not create all of them.

A Tariff Can Expose a Mill That Was Already Close to the Line

Pulp and paper assets tend to have high fixed costs.

That makes utilization important.

A mill operating near its economic threshold may survive when export prices, freight and fiber costs are favorable.

Add a 25% or 50% trade barrier and the same asset can become uneconomic very quickly.

But this creates an important analytical problem.

If the mill was already struggling before the tariff, policymakers have to distinguish:

tariff damage

from

underlying structural weakness.

The appropriate response may differ.

A profitable mill hit by a temporary tariff may need working capital.

An older mill with poor energy efficiency, high fiber costs and weak markets may need major modernization.

Another mill may no longer have a credible path to competitiveness and require an orderly transition rather than repeated financial support.

Treating all three the same would waste money.

This is why FPAC’s emphasis on flexibility across the value chain is valid.

The U.S. Market Cannot Simply Be Replaced

Canada understandably wants to expand non-U.S. exports.

The June Forest Sector Action Plan explicitly includes market diversification, and the federal government has broader ambitions to increase trade outside the United States.

But forest products have a physical characteristic that makes diversification harder than it sounds:

they are heavy.

A tonne of pulp shipped farther travels with additional freight cost.

Lumber moving to another continent requires port capacity, vessel space and additional logistics.

Low-value or bulky grades can lose competitiveness quickly as transport distance increases.

Customer specifications also matter.

A Canadian mill optimized for U.S. buyers may not automatically produce exactly the grades demanded in another market.

This is why proximity to the United States has historically been such an advantage.

A huge customer base sits directly across the border.

Railways, highways, distribution systems and contracts have been built around that geography for decades.

No government export program can reproduce that advantage instantly.

Which Makes FPAC’s Most Important Sentence the Least Dramatic One

Nighbor said:

“No support package can replace reliable access to our largest export market.”

That is probably the most important line in FPAC’s entire statement.

Liquidity can buy time.

Retooling can lower costs.

Automation can raise productivity.

Market development can find new customers.

Worker programs can reduce social damage.

But none of those has the same immediate economic effect as removing a tariff from an established cross-border customer relationship.

That is why this crisis has two tracks.

The trade dispute has to be managed externally.

Competitiveness has to be improved internally.

Canada controls the second much more directly than the first.

Retaliatory Tariffs Are Not Free for Canada Either

Canada responded to the U.S. measures with its own tariffs.

From September 8, Canada imposed counter-tariffs of 15%, 25% and 50% on $27.6 billion of U.S. imports, including pulp and paper products.

That may help Canadian producers compete against certain U.S. imports in the domestic market.

But retaliatory tariffs also have another side.

Canadian companies that depend on U.S. machinery, chemicals, components or raw materials can face higher input costs.

Ottawa therefore retains a tariff-remission mechanism for cases where affected inputs cannot reasonably be sourced in Canada or from alternative countries.

For pulp and paper mills, that detail matters.

The sector operates highly specialized equipment.

Some spare parts, chemicals and process technologies may not have Canadian equivalents.

A trade response intended to protect domestic industry can create another cost problem if critical imported inputs are caught in the same system.

That makes tariff design almost as important as tariff rate.

Nearly 200,000 Jobs Does Not Mean 200,000 Identical Risks

Canada’s forest sector supports nearly 200,000 direct jobs and more than 300 communities, according to the federal government.

That number explains the political urgency.

But it also hides the complexity of the sector.

A B.C. sawmill is exposed differently from an Alberta kraft-pulp mill.

A Quebec tissue producer is different from an Ontario paper converter.

A dissolving-pulp producer has a different customer base again.

Different facilities face different combinations of:

fiber cost;

energy exposure;

U.S. dependence;

logistics;

currency;

equipment age;

and trade measures.

That means Ottawa should be careful about treating “forestry” as one homogeneous industrial category.

FPAC’s call for support that responds to different parts of the value chain is therefore more than lobbying language.

It reflects how the industry actually operates.

Keeping Workers Attached to Mills Has an Economic Logic

FPAC also emphasized keeping employees connected to workplaces.

That deserves more attention.

A mill curtailment does not only reduce current production.

It can begin destroying operating capability.

Experienced recovery-boiler operators cannot always be replaced easily.

Neither can pulp-machine crews, electricians, millwrights, instrumentation technicians or process-control specialists.

If skilled workers leave a remote mill town permanently during a temporary shutdown, restarting later becomes harder.

Worker-retention programs such as Work-Sharing can therefore function as a form of industrial-capacity preservation.

Canada has already expanded training and Work-Sharing measures for tariff-affected sectors, including forestry.

That does not mean every job can or should be preserved indefinitely.

But in a temporary shock, maintaining the workforce can protect the option to restart quickly.

The Better Question Is What the Support Buys

The public debate will naturally focus on billions of dollars.

For the forest sector, a better measure would be what those dollars change.

Does funding lower cash production cost per tonne?

Does it reduce wood transportation expense?

Does it increase usable fiber yield?

Does it improve energy self-sufficiency?

Does it allow a mill to shift into a higher-margin pulp or paper grade?

Does it reduce changeover losses?

Does it create a credible new export customer?

Does it keep a technically viable mill from shutting down because of a temporary working-capital crisis?

Those are measurable outcomes.

A support program that does none of them may preserve an asset temporarily without improving its future.

A smaller program that materially improves mill economics can have much more lasting value.

The Mercer Example Points in the Right Direction

The Mercer Peace River investment is therefore worth watching carefully.

Its significance is not simply that a pulp mill received $20 million.

It is that the funding is tied to physical projects inside the mill.

Black-liquor piping.

Pulp-machine rolls.

Lime kiln.

Recovery boiler.

Product-mix flexibility.

Those are the kinds of projects that can affect operating cost and reliability.

If tariff-response money helps complete investments that would otherwise be postponed during a cash squeeze, public support may prevent exactly the wrong reaction to a downturn:

cutting the capital spending needed to become more competitive.

That can be a vicious cycle.

Tariffs squeeze cash.

The mill cancels maintenance and modernization.

Costs rise.

Reliability falls.

Competitiveness deteriorates.

Another downturn arrives.

The mill is now even weaker.

Breaking that cycle is a more defensible use of temporary industrial support than simply compensating lost margin.

But Canada Still Has to Address the Costs It Controls

This is where FPAC becomes more critical.

The organization is asking Ottawa not only for financial assistance but also for faster regulatory reform and measures that reduce operating costs.

Some of that is already reflected in the federal Action Plan, including efforts around fiber availability, investment, market development and workforce transition.

But the industry will judge execution.

Canada cannot control whether Washington imposes another tariff.

It has much greater control over:

permitting timelines;

interprovincial trade barriers;

transport infrastructure;

investment incentives;

forest policy coordination;

and parts of the regulatory environment.

That does not mean environmental standards should simply be weakened.

FPAC itself says competitiveness improvements should maintain Canada’s environmental standards.

The more useful question is whether the same environmental outcome can be achieved with less duplication, uncertainty and administrative delay.

The Tariff Crisis Is Becoming a Capital-Allocation Test

This may be the larger story.

When an industry is under pressure, governments face a temptation to spread support broadly.

The forest sector probably needs something more selective.

Canada has mills with:

modern recovery systems;

valuable specialty products;

strong fiber positions;

new biomaterial opportunities;

and credible paths to lower cost.

It also has assets facing much deeper structural problems.

The success of the current support strategy will depend partly on whether capital reaches operations where a bridge genuinely leads somewhere.

That means government and companies need uncomfortable conversations about:

asset competitiveness;

market outlook;

required capital;

and realistic return.

“Keeping every mill open” is not a strategy.

Neither is allowing a sudden external tariff to close an otherwise viable mill.

The difficult work lies between those two extremes.

The $7.5 Billion Package Can Buy Time. Canada Has to Decide What to Do With It.

FPAC is right about one thing:

the industry needs immediate help because transformation takes time.

A kraft mill cannot develop a new biomaterial business next quarter.

A sawmill cannot replace the U.S. housing market next month.

A paper producer cannot create another continent’s customer base by the next payroll date.

Liquidity can bridge that gap.

But the bridge has to lead toward something.

Lower cost.

Higher productivity.

A different product mix.

New markets.

Better fiber utilization.

More domestic demand.

Or a more defensible competitive position once tariffs are eventually removed.

Canada’s federal government has already built much of the policy architecture.

There is a $7.5 billion tariff-response package.

A Forest Sector Action Plan.

Regional development programs.

Worker supports.

Retooling money.

Market-diversification funding.

Now comes the harder part:

turning announcements into mill-level economics quickly enough to matter.

The next measure of success should therefore not be how many billions Ottawa announces.

It should be how many viable facilities use the breathing room to lower their structural cost before the breathing room disappears.

Because FPAC’s warning is ultimately correct:

government support can keep a mill alive during a trade shock. It cannot permanently substitute for competitive access to customers.

For Canadian pulp, paper and wood-product producers, the question now is more specific:

If tariffs disappeared tomorrow, would your mill emerge from this support period more competitive than it was before the crisis—or merely more indebted and still dependent on the same market?

That is the test Ottawa’s $7.5 billion package ultimately has to pass.

Last Updated on 11/09/2026 by Jota Machinery