West Kelowna sawmill preparing for potential tariffs

Photo: Colin Dacre

For the better part of 50 years the sawmill, like all Canadian softwood lumber companies, has been fraught with tariffs or quota restrictions brought on by trade issues with the United States.

Gorman Bros. Lumber Ltd. knows how to weather an economic storm.

For the better part of 50 years the sawmill, like all Canadian softwood lumber companies, has been fraught with tariffs or quota restrictions brought on by trade issues with the United States.

“We don't like it. We don't think it's justified,” said Nick Arkle, CEO of operations at the West Kelowna company that's the city's biggest employer.

The one time executive order for a 25 per cent tariff on Canadian goods, however, is a different beast.

“This one came as a bit of a surprise,” Arkle said.

“It probably shouldn't, because I think we all recognize that President Donald Trump — and he has every right to do what he does — tends to be more transactional than (focused on) long-term, strategic planning.”

Arkle fears that his approach to getting what he wants from Canada could seriously harm an already struggling industry.

“We already have a tariff or a duty that we're paying based on the softwood lumber dispute that's been going on for a long time, and we were in another iteration of that dispute, so we're actually paying a duty of 14.4 per cent on all lumber that goes across the border,” he said.

That 14.4 per cent duty, however, is poised to rise to about 30 per cent come August or September of this year, and if that happens lumber companies will be paying a 30 per cent duty, plus a 25 per cent tariff.

“That would be devastating to the industry,” he said.

“It would increase your production cost to a level where it's going to cost more to produce the lumber than you're going to get from the market.”

How will the market react?

In speaking with customers who know about the impending rate increases, the discussion is currently about how that tariff will be passed down to the end user.

How long or how much the market can absorb, however, remains to be seen.

“We don't know how that market will react,” he said. “It could change buying behaviour to the point where the customer just says, ‘No, we're just not going to build a house or we're just not going to finish the renovation that we were going to do.’”

Until that time, Arkle said Gorman Bros. is prioritizing their employees who he admits could be feeling some concern in the wake of an onslaught of reports.

“We’re in this together. We're working with our customers, we're working with the provincial government, we're working with the federal government, and our objective is to try and minimize the impact to the company, and ultimately minimize the impact on (our employees) to the greatest extent possible,” he said.

Some steps have been taken to do just that in earlier iterations of difficulty with the country’s biggest trading partner.

Gorman’s started diversifying everything from its customer base to the products they provide in the years that have passed — a strategy that more are discussing in recent days.

“It doesn't matter which sector you're in,” Arkle said. “You tend to want some diversification. People don't want all their eggs in one basket, as they say, and we're no different.”

The West Kelowna operation sell products into the home finishing renovation market, but heavily into the U.S.

Arkle estimated that 50 per cent of what it produces from its higher value products are US bound.

Another 30 per cent stays in Canada and the rest would be offshore markets.

That will buffer the hit but the U.S. remains an important customer base. Arkle described it as a large market that likes good quality products for a premium price.

“They pay on time and they’re good for their money,” Arkle said.

“It’s a market you never want to walk away from. It's very easy to say, ‘well, let's just go somewhere else.’ We go through these disputes and we come out of them — you've got to think long term.”

That means minimizing short term pain so when the time comes, a profitable relationship can resume.

“There's always a concern that if you back out of a market in the US, the Europeans will move in and take it over, and then it'll be very difficult to get it back in the future.

“We always say we're B.C. based, and we're in B.C. to stay and we've got to figure it out,” he said.

“There are a lot of unknowns right now, and so everyone's trying to feel their way through this. We got a reprieve and we've got another month to keep working with customers on that.”

Industry group raises alarm

The BC Council of Forest Industries is also warning that the tariffs threaten the competitiveness of B.C.’s forestry sector, jobs in local communities, and the affordability of essential goods for Americans.

“This tariff on all forest product exports will be devastating, potentially leading to further job losses hurting the workers and communities across the province that depend on forestry," the statement reads in part.

COFI also urges the Canadian and U.S. governments to work together on a fair, long-term solution that avoids further economic harm on both sides of the border and supports trade stability. The forest industry is a key driver of jobs and economic growth, and it is essential that governments work together to ensure its future success.”

While Canadian forestry sector workers are concerned, Americans will also feel the pain.

California homebuilders say they will have few options but to keep buying Canadian lumber even if it's hit with 25 per cent tariffs as they rebuild thousands of homes destroyed by devastating wildfires in Los Angeles.

Dan Dunmoyer, president of the California Building Industry Association, says "there aren't really alternatives" to Canadian lumber used for homebuilding in the state because about 80 per cent of Californian land is owned by federal or state government and can't be logged.

Dunmoyer said California also lacks mills, environmental policies and other ecosystem needs that would allow a quick switch to local lumber production, and making those changes would likely take years.

He said California homebuilders can buy from other U.S. suppliers, but there would also be a cost increase if the state looks domestically to replace Canadian production.

— with files from The Canadian Press