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Was talking with a client who wanted to know if a squirrel stripping the bark off his tree might kill it. The simple answer is yes indeed. A secondary issue of importance is pathogens that may be active in the area. As I am not a squirrel expert, it is best to leave this subject to some pros.
http://icwdm.org/wildlife/Squirrels/BarkStripping.aspx

Squirrel Damage Management-University of Nebraska-Lincoln. The following is an excerpt:

Prevent Bark Stripping, Twig Clipping, and Territorial Marking
Squirrels typically strip bark during winter and spring. Deciduous trees with smooth bark sustain the most damage, but other trees can be targeted. Twig clipping occurs most frequently in spring and early fall. Fortunately, trees can sustain damage up to 50 percent of the trunk’s circumference and foliage losses up to 30 percent without significant impacts. Landowners can prevent damage to trees by installing metal collars as described above. Polybutene-based repellents can also help prevent access of squirrels to trees or branches. Protect the tree from the petroleum-based repellent by applying a plastic barrier between the tree surface and the repellent. Follow label instructions.
Occasionally, tree squirrels will gnaw on structures, decks, porches, fences, and other objects that do not provide nutrition, moisture, or housing needs. It is believed that this type of damage is a byproduct of territorial marking. If a physical barrier, such as metal flashing is not an option, then commercial repellents can be effective. Apply the repellent on the marks and to a 12-inch radius around it. Repeat as necessary. If the impact to trees or structures is significant, remove offending squirrels by cage trapping or shooting.

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