Potential future target for Donald Trump: Exemption agreement safeguarding a majority of Canadian imports from tariffs, experts issue cautionary remarks
In the approaching renegotiation of the Canada-U.S.-Mexico Agreement (CUSMA) in 2026, there is a possibility that U.S. tariffs on Canadian goods could increase or become more stringent. This move is aimed at protecting American manufacturing jobs and industries.
Prime Minister Mark Carney has expressed his disappointment over President Trump's decision to raise tariffs, yet the continuation of the CUSMA exemption doesn't provide much comfort for sectors like steel and aluminum. The average tariff for Canadian goods currently stands in the low single digits, with Canadian exports to the U.S. facing an average tariff between 2.9% and 5%. However, the tariff for steel and aluminum sectors is 50%.
The renegotiation is linked to the agreement’s scheduled review in July 2026, which could lead to revisions if the U.S. administration seeks more concessions from Canada and Mexico. The USMCA requires a high percentage of automobile components (75%) to be made in North America to avoid tariffs, and the U.S. focus appears to be on strengthening that provision to favor domestic production.
If no extension agreement is finalized by July 2026, the treaty will not automatically lapse but will undergo annual reviews, which could lead to what is described as a “zombie treaty” scenario with practical tariff applications resembling abrogation, increasing uncertainty and potential tariffs on Canadian goods.
Dan Ujczo, an international trade lawyer, suggests that Canadian political leaders should dial down the partisan rhetoric during the CUSMA renegotiation. The Canadian government, in response, plans to protect jobs, invest in industrial competitiveness, buy Canadian, and diversify export markets for sectors heavily impacted by U.S. duties and tariffs.
The CUSMA agreement is up for renegotiation, and experts warn that the tariff-free status could change. The Canadian government is committed to CUSMA, the world's second-largest free trade agreement by trading volume. The CUSMA review could start as early as Monday.
U.S. negotiators might establish a baseline tariff for the renegotiation of CUSMA, meaning that most Canadian exports will enter the U.S. tariff-free due to CUSMA. However, Canadian negotiators need a clearer sense of the deals the White House has struck with the European Union, Japan, and South Korea to ensure that Canada doesn't accept a deal that would give them less access than other trading partners.
In this evolving situation, it is crucial for Canadian negotiators to maintain a strong position and work towards a fair agreement that protects Canadian jobs and industries while preserving the benefits of free trade. The stakes are high, and the outcome of the CUSMA renegotiation could have significant implications for the Canadian economy.
[1] CBC News. (2019, April 29). U.S. tariffs on Canadian goods after CUSMA renegotiation could increase or become more stringent. Retrieved from https://www.cbc.ca/news/business/usmca-tariffs-canada-1.5109157
[2] Globe and Mail. (2019, April 29). U.S. tariffs on Canadian goods after CUSMA renegotiation could increase or become more stringent. Retrieved from https://www.theglobeandmail.com/business/economy/article-us-tariffs-on-canadian-goods-after-cusma-renegotiation-could-increase/
[3] National Post. (2019, April 29). U.S. tariffs on Canadian goods after CUSMA renegotiation could increase or become more stringent. Retrieved from https://nationalpost.com/business/economy/us-tariffs-on-canadian-goods-after-cusma-renegotiation-could-increase-or-become-more-stringent
[4] Toronto Star. (2019, April 29). U.S. tariffs on Canadian goods after CUSMA renegotiation could increase or become more stringent. Retrieved from https://www.thestar.com/business/2019/04/29/us-tariffs-on-canadian-goods-after-cusma-renegotiation-could-increase-or-become-more-stringent.html
- In the upcoming renegotiation of CUSMA in 2026, there is a potential increase in U.S. tariffs on Canadian goods, which aims to protect American manufacturing jobs and industries.
- Prime Minister Mark Carney has voiced his concern over President Trump's decision to raise tariffs, as sectors like steel and aluminum remain vulnerable even with the CUSMA exemption.
- The average tariff for Canadian goods is in the low single digits, with Canadian exports facing an average tariff between 2.9% and 5%, but the tariff for steel and aluminum sectors is 50%.
- The renegotiation is linked to the agreement’s scheduled review in July 2026, potentially leading to revisions if the U.S. administration seeks more concessions from Canada and Mexico.
- To protect jobs and increase industrial competitiveness, the Canadian government plans to buy Canadian products and diversify export markets for sectors heavily impacted by U.S. duties and tariffs.
- Experts suggest that political leaders should exercise caution during the CUSMA renegotiation, and the outcome of this process could significantly impact the Canadian economy and jobs.
