Canada’s biggest shield against U.S. tariffs is still intact after Donald Trump’s latest trade deadline, but that could change by next year, experts warn, as Prime Minister Mark Carney prepares for a new round of talks with the mercurial American president.
While Trump raised the tariff on Canadian goods to 35 per cent in an executive order Thursday night, an exemption for goods which comply with the Canada-U.S.-Mexico Agreement (CUSMA) was maintained. The order was signed after Ottawa and Washington failed to reach an economic and security deal.
That means, most economists agree, that roughly 90 per cent of Canadian exports will still enter the U.S. tariff-free. But, warned BMO chief economist Douglas Porter, that agreement is up for renegotiation in 2026.
“Even though we’re in a relatively good spot right now, I don’t think that should give us much confidence in the longer term,” Porter said Friday.
With CUSMA-compliant goods facing no tariffs, and sector-specific tariffs of 50 per cent on steel and aluminum, Canadian goods currently face an average tariff in the low single digits. But that could easily change when the agreement is renegotiated, Porter added.
The fact that Canadian negotiators weren’t able to get any agreement lowering the 35 per cent tariff — or cutting sector-specific tariffs — ahead of Trump’s Aug. 1 deadline isn’t exactly reassuring either, Porter said.
“It really does raise some questions over how smoothly the renegotiation of (CUSMA) is going to go,” said Porter. “We’re going to come into it with the U.S. holding this 35 per cent over our head.”
Shortly after midnight on Thursday, just after the hike came into effect, Carney said he was “disappointed” by Trump’s decision, after Canadian officials spent several days this week hunkered down in Washington meeting with U.S. Commerce Secretary Howard Lutnick and representatives of Senate Republicans.
“We remain committed to CUSMA, which is the world’s second-largest free trade agreement by trading volume,” Carney’s statement read.
“Other sectors of our economy — including lumber, steel, aluminum, and automobiles — are, however, heavily impacted by U.S. duties and tariffs. For such sectors, the Canadian government will act to protect Canadian jobs, invest in our industrial competitiveness, buy Canadian and diversify our export markets.”
Dominic LeBlanc, Carney’s point-person on Canada-U.S. trade, told Radio-Canada’s “Midi info” that Canadian officials have always maintained that they “wouldn’t accept just any agreement.”
“We’d accept an agreement that was in the interests of workers, of the Canadian economy, and at the end of the day yesterday that agreement wasn’t in sight,” LeBlanc said Friday, as he was set to leave Washington after meeting with Lutnick on Thursday.
The head of the association representing small businesses said Canada avoided the worst-case scenario this week by keeping CUSMA-compliant goods tariff-free, but said the country is not out of the woods yet.
In next year’s renegotiation, the U.S. could give preferential status to goods which comply with CUSMA — but that doesn’t mean they’d still be duty free, warned Dan Kelly, CEO of the Canadian Federation of Independent Business.
“That’s absolutely one of the prospects I fear,” said Kelly of the idea that U.S. negotiators would try to put tariffs on CUSMA-compliant goods. “There’s also nothing stopping him from pulling out of CUSMA altogether. That would be the nuclear scenario.”
A senior official with the Canadian Chamber of Commerce also said Canadian businesses need to be wary of the CUSMA revamp, and any lingering uncertainty until it’s completed.
“The review could start Monday,” said Matthew Holmes, the chamber’s head of public policy. “But we’re going to be talking about CUSMA until 2026, and that’s the third act of this play.”
At the moment, Holmes estimated, Canadian exports to the U.S. face an average tariff of anywhere from 2.9 to five per cent, which still gives this country the best treatment of any American trading partner.
Still, Holmes isn’t under any illusion that that low rate will continue — even if Canada’s access remains better than most.
“I think it’s reasonable to expect they come to the table with a baseline tariff,” Holmes said of U.S. negotiators. “If they establish a floor of 15 per cent on the world and we come in at 10, we’re in relatively good shape, but it’s still not great for our businesses.”
For sectors like steel and aluminum which still face targeted tariffs, the continuation of the CUSMA exemption didn’t provide much comfort at all, said Catherine Cobden, CEO of the Canadian Steel Producers Association.
“What we see is some of our largest trading allies, both with us and the United States, accepting and normalizing 50 per cent tariffs,” said Cobden. “That cannot happen in the case of Canada.”
“We don’t have months to wait for a USMCA process. We are in the thick of it now,” she said.
Dan Ujczo, an Ohio-based international trade lawyer, said in spite of sectoral pressures, Canada needs to get a clearer sense of the deals the White House has struck with the European Union, Japan and South Korea.
“Canada and Mexico started these negotiations with the best access to the United States in the world. They don’t want to put themselves in a position now to accept a deal where that’s going to get them less access to the United States than any other trading partner, so I think we still need to see what those other parties have agreed to,” said Ujczo, who has also worked for both Canadian and U.S. governments.
Ujczo also said it’s time for Carney and other Canadian political leaders to dial down the partisan rhetoric.
On Friday, the Conservatives and the NDP accused Carney of failing to improve circumstances for Canadian workers.
“This is a negotiation,” Ujzco said. “The political campaigns are over now.”
