International political discourse in 2025 has been haunted by the spectre of Donald Trump and his brute force reshaping of global trade relationships to the (perceived) advantage of the United States. Canadians have been consumed by the question of when a deal might be struck to end Trump’s egregious tariffs, real and threatened, and what that deal might cost us. Two deadlines for an agreement, July 21 and August 1, have passed with no clarity on what comes next, or even what’s on the negotiating table.
President Trump’s demands seem to change from day to day. Canadian concessions to the Trump agenda—including cancelling a multibillion dollar digital services tax, introducing worrying border and immigration reforms, and potential participation in a costly continental missile defence scheme—have clearly gone unnoticed or unappreciated in Washington. It’s not clear how much more capitulation Prime Minister Mark Carney is prepared to make in order to secure a deal.
No deal is better than a bad deal, as economist Jim Stanford has argued convincingly. That is especially true of a bad deal that further locks Canada into the orbit of a deeply troubling regime that views acquiescence as weakness, a sign to demand more and more. As we quickly approach the planned review of the Canada-U.S.-Mexico Agreement (CUSMA), it may be wise for both Canada and Mexico to avoid bilateral “deals” in favour of a more balanced trinational conversation about the North American economy.
In this article, we review the bewildering array of tariffs announced by the Trump regime and assess their impact so far on the Canadian economy. We then examine the “deals“ the Trump administration has reached with the United Kingdom, European Union and other U.S. trade partners, and compare this to what Trump may be demanding of Canada. Based on the breadth of the Canada-U.S. talks and the risks involved in conceding to Trump in a number of areas, we are concerned the government’s strategy appears very different from the “elbows up” slogan we heard during the election.
Status of U.S. tariffs and Canadian counter-tariffs
Amid the on-again, off-again tariff announcements spanning every country in the world (and some islands inhabited solely by birds), it can be challenging even for experts to keep track of what’s happening. There are several distinct flavours of tariffs affecting Canada-U.S. trade and U.S. trade from other countries:
- National emergency and so-called reciprocal tariffs.
- Sectoral tariffs on steel, aluminum, copper and automotive imports, with likely extension to the semiconductor, timber and lumber, trucks, commercial aircraft and pharmaceutical sectors.
- Anti-dumping and countervailing duties on softwood lumber.
- Canadian retaliatory tariffs on a list of U.S. imports, including foodstuffs, finished products and some industrial inputs.
National emergency and reciprocal tariffs
Much of the Trump administration’s justification for launching a trade war on the world stems from a 1977 law, the International Emergency Economic Powers Act (IEEPA), which grants the U.S. president authority to regulate economic transactions once a national emergency has been declared. The law was used, until now, to justify sanctions on foreign states or their governments, and more recently on individuals and non-state actors or groups.
Trump claims the IEEPA gives him the right to impose tariffs as well. One of the first actions of the new Trump administration was to impose tariffs on Canada and Mexico, based on a declared emergency related to purported imports of the opioid fentanyl and fears about immigration. This move made good on a promise Trump made shortly after the November 2024 presidential election.
Outside of North America, the IEEFA tariffs have been called “reciprocal tariffs,” as they respond to alleged foreign barriers to U.S. exporters. Trump’s initial list of reciprocal tariffs, announced on April 2, “Liberation Day,” included a minimum 10 per cent rate, with much higher tariffs for several countries. These tariffs, which were paused for 90 days following a flight from U.S. equities, treasuries and the U.S. dollar, formed the starting point for bilateral trade negotiations.
These tariffs are facing legal challenges at the World Trade Organization and from within the U.S., where the Court of International Trade and the District Court for the District of Columbia have declared them illegal, pending appeals. While ostensibly about addressing perceived trade imbalances, Trump imposed a 40 per cent tariff on all Brazilian imports for prosecuting former president Jair Bolsonaro for his role in an attempted coup.
The IEEPA tariffs were initially set at 25 per cent for Canadian exports, with a lower 10 per cent rate on energy exports—a tell that the U.S. needs a lot of what Canada sells it. The former rate was raised to 35 per cent on August 1. However, goods that qualify for tariff-free treatment under CUSMA are currently exempted from these tariffs.
Prior to the Trump tariffs, only about 40 per cent of Canadian exports were certified as CUSMA-compliant due to the high costs and complexities of registration and compliance. As Figure 1 shows, that share shot up to 57 per cent of Canadian exports in recent months. Potentially, 90 per cent of Canada’s exports could qualify as CUSMA-compliant, although this requires additional costs for Canadian exporters. (Note this costly reality in comparison to the oft-stated line that it’s easier to trade with the U.S. than with other Canadian provinces.)
Sectoral tariffs
In addition to the IEEFA tariffs, a number of sectoral tariffs have been introduced under Section 232 of the Trade Expansion Act of 1962. The law allows the president to impose tariffs, quotas or other restrictions to imports when an investigation determines they threaten national security. These tariffs are being deployed on all countries, purportedly to induce new investment into the U.S. in covered sectors while providing Trump leverage in international trade talks.
Shortly into his first term as president, Trump imposed sectoral tariffs of 25 per cent on steel and 10 per cent on aluminum imports, then negotiated them away with Canada and Mexico during the NAFTA renegotiations that led to the CUSMA. Shortly after taking office this year, Trump issued an executive order claiming that new information justified reimposing those tariffs at a higher 25 per cent rate, raised to 50 per cent, in June, on all foreign imports. Recently, the US announced an expansion of these metal tariffs to 407 categories of “derivative” products that contain steel and aluminum, causing more uncertainty for Canadian exporters.
The Trump administration also imposed a 25 per cent Section 232 tariff on imports of all foreign automobiles, again partly based on a national security review undertaken in his first term as president. In doing so, Trump violated side-letters signed with Canada and Mexico at the close of the NAFTA renegotiations promising that a certain quota of imports from either country would be safe from future national security tariffs
Facing pressure from North American automakers, Trump moderated the 25 per cent tariff for CUSMA-compliant vehicles, which only face a 25 per cent tariff on non-U.S. content (typically about half the value of a finished vehicle assembled in Canada). Auto parts from Canada and Mexico are exempt from the 25 per cent tariff for two years. But the Trump administration has launched another Section 232 investigation into trucks and heavy-duty vehicles that could be devastating for the Canadian automotive industry.
Further to these highly damaging industry-wide tariffs, a new 50 per cent tariff was introduced on some copper products beginning August 1. The tariffs will apply to about $3 billion worth of annual semi-finished copper product exports and may eventually cover refined copper—the bulk of our U.S. exports—with a 15 per cent tariff in 2026 and 30 per cent tariff in 2027. Trump’s order directly menaces Canada’s copper manufacturing sector by shifting Canadian exports lower down the value chain.
New sectoral tariffs of up to 100 per cent on semiconductors and up to 200 per cent on pharmaceuticals are expected to be announced soon. Ongoing Section 232 investigations into trucks, the aerospace sector, and timber and lumber may result in future tariff hikes threatening Canadian workers.
Countervailing and antidumping duties on softwood lumber
Unlike Trump’s metals and automotive tariffs, U.S. concerns with Canadian lumber imports have been ongoing for more than two decades. Apart from a brief period of negotiated calm during the Obama presidency, Canadian lumber exports have often faced significant anti-dumping and countervailing duties based on allegations that stumpage rates for felling trees on Crown land are too low and therefore an unfair subsidy for Canadian exports—an argument rejected by a World Trade Organization dispute panel in 2020.
Under WTO and CUSMA rules, countries may impose tariffs/duties on imports of goods sold into their domestic market at below-market prices (anti-dumping duties) or that benefited from subsidies (countervailing duties). The Trump administration tripled the anti-dumping rate on Canadian softwood lumber in late July (to 20.56 per cent), then revised the countervailing duty rate from 6.74 per cent to 14.63 per cent in August.
That puts the combined tariff at 35.19 per cent. The Canadian forestry industry and Canadian unions representing forestry workers have called on the federal government to negotiate a long-term softwood lumber agreement with the U.S. while helping the industry to transition to more value-added production that is less dependent on access to the U.S. market. In early August, the federal government announced a package of support measures for the industry, including $700 million in loan guarantees, $500 million towards diversification and value-added production, and $50 million in income and other retraining support for workers.
Canadian retaliatory tariffs
Canada responded in March and April with retaliatory tariffs of 25 per cent across a wide range of U.S. imports. These comprise many agricultural commodities (e.g. meat, vegetables, beverages, tobacco), raw materials (e.g. plastics, rubber, wood, paper), clothing and textiles, vehicles, electronics, tools and machinery and equipment. In virtually all cases, Canadian or non-U.S. alternatives are available for all of these tariffed goods. Some Canadian provinces have also taken U.S.-made liquor off shelves.
Canada also initially imposed reciprocal tariffs of 25 per cent on steel, aluminum and non-CUSMA-compliant automobiles. However, a remissions program for tariffs paid on steel and aluminum that is transformed into other goods in Canada has significantly watered down the initial retaliation, based on industry concerns about availability of affordable non-U.S. alternatives (e.g., for beer and tomato cans). Canada has exempted automotive tariffs for companies that commit to producing vehicles in Canada and has not matched Trump’s increase to 50 per cent tariffs for steel and aluminum.
Recently, the federal government announced it will remove the retaliatory tariffs on CUSMA-compliant goods by September 1. At the same time, these tariffs netted the government $2.4 billion in customs revenues in April and May, partially offsetting weaker corporate and sales taxes from the tariff-induced economic slowdown. Some of this new money is being used to support workers and industry in impacted sectors, including forestry and steel. Canada has also introduced steel import caps and tariffs on non-U.S. imports, including from free trade partners, in an effort to protect struggling domestic producers.
Economic impacts and trade data
All of the above tariff measures naturally affect the Canadian economy in direct and more complicated ways. As of early August, there’s good news and bad news for Canada. Overall, Canada’s economy has held up reasonably well in light of the circumstances. Economic activity, including trade, ramped up at the end of 2024 and early 2025, the period before new tariffs were implemented, then swung the other way in the second quarter.
Canada’s merchandise trade balance has swung sharply negative in the wake of the Trump tariff war. In the second quarter of 2025 (2Q2025), Canada’s merchandise trade deficit was just under $19 billion compared to just under $3 billion in the second quarter of 2024 (2Q2024). This comes after a surge in U.S.-bound exports in the first quarter of 2025 as exporters tried to get ahead of the looming tariffs. Table 1 shows that overall exports fell by five per cent in 2Q2025 over 2Q2024, led by declining exports to the U.S. of 14 per cent, while overall imports increased by three per cent, but imports from the U.S. fell by five per cent.
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