On paper, Donald Trump’s latest tariffs only apply to about five per cent of Canada’s goods exports.
But they set a precedent of ignoring the Canada-U.S.-Mexico Agreement on trade (CUSMA) that economists, trade experts and business leaders warn could inflict much wider damage. They also use a legal mechanism that gives the U.S. president a lot more flexibility.
The new 50 per cent tariffs on a wide range of goods announced Monday are scheduled to go into effect within 30 days.
The tariffs target goods which would have previously been exempt under CUSMA, undercutting a key foundation of the Canadian economy, said Matthew Holmes, head of government policy at the Canadian Chamber of Commerce.
“It’s the first serious signal that CUSMA’s not a carveout any more,” said Holmes. “This is a dangerous precedent.”
With roughly 70 per cent of Canadian exports still destined for the U.S. market, having CUSMA dismantled rips apart a key case for producing goods here, Holmes argued.
“When it comes to foreign direct investment or building things in Canada, a lot of different companies see value in the North America-wide access we have,” said Holmes. “It’s part of our competitive advantage. But this begins to undermine that.”
Veteran international trade lawyer John Boscariol agreed, saying that losing the privileged access Canada has to the U.S. market under CUSMA removes a key plank from the case for investing here.
“The Canadian government can no longer say we still have the best access to the U.S. market because of CUSMA,” said Boscariol, head of the trade law group at McCarthy Tetrault.
“The U.S administration has put its mind to targeting goods originating under CUSMA. I think we all got used to CUSMA being an exemption,” Boscariol added.
And, unlike previous sector-specific tariffs such as those against Canada’s steel, aluminum and softwood industries, this week’s new 50 per cent tariffs were issued under a law which gives Trump much more legal flexibility, Boscariol said.
Tariffs against steel and aluminum were issued on national security grounds under Section 232 of the U.S. Trade Expansion Act, but first required an investigation by the U.S. Department of Commerce. Other tariffs require an investigation by U.S. Trade Representative Jamieson Greer.
But this week’s tariffs were issued under Section 338 of 1930’s Tariff Act, which doesn’t require any investigation at all.
“There’s no investigation there, and it can be applied against a specific country,” said Boscariol. “It gives Trump much more flexibility.”
This week’s tariffs apply to five per cent of Canadian goods exported to the U.S., said BMO economist Robert Kavcic in a research note. But that seemingly small impact won’t be evenly spread, he warned. And the precedent could send a chill through business confidence, he added.
“While that still sounds digestible in the aggregate, some specific businesses/industries would be hit extremely hard. And, if the shelter of USMCA is in fact broken, that would do serious further damage to business confidence,” Kavcic wrote. “This, unfortunately, would come at a time when the Canadian economy is showing signs of breaking out of its slump and returning to decent growth into 2027.”
