The Supplier Divorce: How 35% Tariffs Turn Good Business Relationships Into Unaffordable Ones

Mark Tessier has been buying cedar from the same British Columbia mill since 2009. Seventeen years. The mill ships within 48 hours, the grading is consistent, and the price has tracked material costs without games. Tessier runs a mid-sized fence company in Oregon that installs about 900 residential projects a year. When combined tariffs and duties on Canadian lumber climbed to nearly 35% by mid-2026, the arithmetic stopped working.

The tariff is not paid by Canada. It is paid by the importer, to U.S. Customs, at the border. On a truckload of cedar worth $18,000 before the duty, combined tariffs and duties now add over $6,000 before the lumber reaches the yard. For a business running on 22% margins after labor and overhead, a 35% cost increase on a key input fundamentally breaks the economics.

He looked at domestic mills in Washington and Idaho. Lead times ran four to six weeks instead of two days. Quality was uneven. Pricing was higher than the Canadian mill even before the tariff, because U.S. capacity in specialty cedar is limited and the domestic suppliers know it. He looked at composite alternatives. His customers don't want composite. They want cedar. The fence they see in their head has vertical grain and smells like the forest.

What the tariff actually does

A approximately 35% duty is not a negotiating cost or a temporary friction. It re-prices the supplier out of reach. The Congressional Research Service confirmed the rate in a July 2026 analysis of Section 232 authority, the legal mechanism that allows the executive branch to impose national security-based tariffs without legislative approval. Canada responded in March 2026 with C$15.6 billion in counter-tariffs on U.S. goods, a figure also documented by CRS. Neither side has blinked.

For businesses operating on the 15% to 25% net margins common in construction, distribution, and light manufacturing, a 35% input cost increase has exactly one outcome. You stop buying. The tariff is designed to make that happen. The theory is that the pain of switching will force investment in domestic capacity. The reality is that domestic capacity in many categories does not exist at scale and will not exist for years. The investment required to build a new mill, foundry, or extrusion plant runs into the tens of millions and takes three to five years before the first unit ships.

Tessier is not ideologically opposed to buying American. He would prefer it. There is no American supplier who can do what the BC mill does, and the ones who come closest charge more and deliver slower. The relationship he is being forced to sever was not a convenience. It was a structural advantage.

The loyalty tax

The businesses hit hardest are the ones who stayed loyal the longest. Companies that diversified their supplier base in 2024, when earlier tariff threats first surfaced, have more room to maneuver now. Companies that kept their Canadian partnerships intact through eighteen months of uncertainty are now facing the full cost of the disruption in a single quarter.

This is the opposite of how business strategy is supposed to reward behavior. Good-faith relationships, built on reliability and fair pricing over decades, are now a liability. The companies that acted in 2024 on the assumption that the threats were real got a head start. The companies that assumed rational trade policy would prevail are now scrambling.

Tessier's company can absorb maybe two more months at current tariff rates before he has to walk away from the BC mill. He has been paying the tariff out of operating cash while he works through existing contracts that were priced before July. When those contracts close, the new ones will be priced at a level that makes Canadian cedar uncompetitive, or he will stop bidding cedar projects entirely.

He has started having the conversation with the mill owner that neither of them wanted. Seventeen years does not buy you an exemption.