<p>How effective are trade-based environmental regulations in reducing deforestation? This paper evaluates the impact of the European Union Timber Regulation (EUTR), which prohibits the import of illegally harvested timber into the EU. Using a difference-in-differences design, we estimate the causal effect of the EUTR ondeforestation across 161 countries from 2001 to 2019. We compare forest loss in countries that were economically dependent on EU timber exports prior to the regulation to those with lower exposure. We find that the EUTR led to a substantial increase in deforestation in EU trade-dependent countries, equivalent to 272,640 km² of forest loss between 2010 and 2019. Combining the quantitative analysis with qualitative interview evidence to shed light on the mechanism, we show that the EUTR restructured global supply chains, incentivizing trade diversion to less regulated markets and accelerating land-use change. Our findings contribute to debates on the effectiveness of market-based environmental governance.</p>