Canadians can breathe a temporary sigh of relief, as Trump’s much-vaunted “Liberation Day” appears to have exempted Canada from the new reciprocal tariff regime being imposed by the United States on its trading partners.
After months of threats, negotiations, tariffs and counter-tariffs, it appears that the exemption on “USMCA compliant goods” will remain in place.
The Good News
In the past, Canadian exporters were able to switch between WTO Most Favoured Nation (MFN) and USMCA trade regimes for reasons of cost or administrative burden. Under the exemption granted on March 6 (which expressed no expiry date), goods exported under the USMCA scheme would be considered “compliant” and thus exempt from the 25% tariff. It is being reported that the March 6 “USMCA compliant goods” exemption will remain in place for the time being under today’s Executive Order.
However, if the February 1, 2025 order (Imposing Duties To Address the Flow of Illicit Drugs Across Our Northern Border) is ever rescinded, non-USMCA compliant goods will be subject to a 12% duty, instead of the current 25% duty.
It is unclear what brought about his change of heart, but President Trump seems to have agreed to a re-negotiation of the Canada/US trade and security relationship during his call with Prime Minister Carney last Friday.
Following their discussion on the phone, Trump posted:
I just finished speaking with Prime Minister Mark Carney, of Canada. It was an extremely productive call, we agree on many things, and will be meeting immediately after Canada’s upcoming Election to work on elements of Politics, Business, and all other factors, that will end up being great for both the United States of America and Canada. Thank you for your attention to this matter!
Prime Minister Carney released a statement saying:
The leaders agreed to begin comprehensive negotiations about a new economic and security relationship immediately following the election. In the interim, the leaders agreed that conversations between the Minister of International Trade and Intergovernmental Affairs and President of the King’s Privy Council for Canada, Dominic LeBlanc, and the United States Secretary of Commerce, Howard Lutnick, will intensify to address immediate concerns.
The Bad News
Things get much murkier when it comes to the automotive sector. The United States has previously said that it would impose a 25% duty on automotive components that do not originate in the United States. However, because many automotive parts are jointly manufactured in multiple jurisdictions, the US is now saying that they need more time to determine how “foreign content” will be calculated in vehicles. The United States has given itself 90 days to create a process for determining how those duties will work.
Similarly, Trump has stated that he intends to move forward with tariffs on so-called “strategic” goods, including lumber, pharmaceuticals and semiconductors. The United States has not stated any timeline for when these measures might be announced or put into place. It is not known whether these duties on “strategic” goods would apply to Canadian, or otherwise “USMCA compliant” trade.
Previously announced 25% tariffs on steel and aluminum remain in place – as do Canada’s retaliatory tariffs.
The Ugly News
Economists have warned that Trump’s redrawing of the international system of trade, with new US tariffs imposed on dozens of countries, could push the global economy into a recession. With Canada’s economy still so intimately linked to the market south of the border, turmoil in the United States could drag us down with them.
Canada’s Response
Prime Minister Carney reacted to the US announcement prior to meeting with his cabinet in Ottawa Tuesday evening. He indicated that he would have more to announce tomorrow after consulting with Canada’s First Ministers.
While today’s reciprocal tariff announcement did not include Canada, it does not spell the end of Canada’s trade dispute with the United States. Trump’s tariffs on steel and aluminum remain in place, and the status of automobile tariffs on Canada remain unclear. If Canada and the US are to negotiate a new trade and security agreement, this may be the beginning of a very long back-and-forth between the two nations.
Ben Parsons
Vice President
bparsons@counselpa.com