A drone view shows trucks crossing into the United States via the Zaragoza-Ysleta border bridge in Ciudad Juarez, Mexico, on April 2.Jose Luis Gonzalez/Reuters
While U.S. President Donald Trump took a sledgehammer to the global trading system on Wednesday, he offered a reprieve to Canada and Mexico, potentially putting his neighbours at a competitive advantage if they stay within the bounds of the continental trade agreement.
In his most sweeping protectionist measures yet, Mr. Trump placed a 10-per-cent baseline tariff on imports into the U.S., with considerably higher tariffs on dozens of trading partners including the European Union, China and Japan.
Canada and Mexico, however, will not face the baseline tariff or a higher country-specific duty. Both remain subject to the across-the-board tariffs imposed in early March, ostensibly to force Ottawa and Mexico City to address border security problems. However, goods that comply with the United States-Mexico-Canada Agreement (USMCA) will remain exempt.
That means a significant portion of Canadian and Mexican goods will continue to trade tariff-free, while other countries face a steep jump in duties. In effect, Mr. Trump is forcing more North American trade to happen under the auspices of the USMCA, while making it prohibitively expensive for companies to export non-compliant goods to the U.S.
Globe economics reporter Mark Rendell says Wednesday’s tariff announcement by President Donald Trump saw Canada not hit as hard as predicted, but that the trade war has now gone global.
CIBC chief economist Avery Shenfeld said in an e-mail that Canada appears to have gotten off lighter than expected, but that remaining tariffs on aluminum and steel as well as vehicles and auto parts are still “very problematic.”
According to economists at Toronto-Dominion Bank, the effective tariff rate Canada now faces from the U.S. is roughly 10 per cent, up from less than 2 per cent before Mr. Trump took office. CIBC economists, meanwhile, estimate the average effective tariff rate could be 5 per cent if all goods become compliant with the USMCA.
Nevertheless, Canadian business groups on Wednesday were tepidly optimistic that Mr. Trump’s decision to leave out Canada and Mexico from reciprocal tariffs means any trade-related disputes can be punted off to the renegotiation of the USMCA. The agreement is up for a review in July, 2026, though politicians may push for negotiations sooner.
“We hope that today’s positioning regarding Canada by the U.S. is part of a path to real negotiation, ultimately leading to long-term partnership focused on continental economic security and resilience,” said Chamber of Commerce president Candace Laing in a statement.
There’s also some hope that border-related tariffs imposed on Canada and Mexico may be lifted. The executive order issued on Wednesday notes that if those levies are removed, a 12-per-cent tariff would apply to goods that are not compliant of the USMCA – less than half of existing the 25-per-cent rate.
“It suggests to me that there is a path forward here. It’s not straight line. It’ll require a lot of effort. But all in all, I would say it wasn’t a bad day for Canada,” Business Council of Canada president Goldy Hyder told The Globe and Mail.
Prime Minister Mark Carney said on Wednesday that Mr. Trump’s new global tariffs “are going to fundamentally change the international trading system” but that the U.S. President “has preserved a number of important elements of our trading relationship.”
How that change in the international trading system will affect Canada is still unclear, as economists see both opportunity and risk.
Mr. Shenfeld said that the higher-than-expected global tariffs “could push up inflation and hit confidence south of the border, which can also dent Canada’s export volumes. So, there’s still work for Canada’s incoming government to try to get to the negotiating table and see if we can reach a mutually beneficial deal with the U.S.”
At the same time, some Canadian exporters may benefit relative to their competitors in other countries now facing steep tariffs.
“Should producers in both countries move to make more of their goods USMCA-compliant and the governments work towards resolutions for border frictions, there is scope for Canada and Mexico to take market share from other U.S. trading partners,” said Royce Mendes, head of macro strategy at Desjardins, in a client note.
Canada and Mexico will still get hit by sector-specific tariffs on steel and aluminum alongside automobiles, although cars that trade under the USMCA won’t pay levies on the value of the vehicle made up of U.S. auto parts.
According to U.S. data, 38 per cent of Canadian exports to the U.S. in 2024 were stamped USMCA-compliant. That means the products met the rules-of-origin outlined in the trade agreement, which specifies what proportion of a good must be sourced in North America.
Trade experts believe that the actual proportion of Canadian exports that could comply with USMCA rules is significantly higher than 38 per cent. In the past, companies have frequently chosen not to certify their goods because they already traded tariff-free or at very low rates under “most favoured nation” rates that apply to all trading partners. The additional compliance costs were not, before now, always worth it.
By giving Canada and Mexico a break, Mr. Trump has shown the value of the USMCA. But he has also increased his leverage ahead of the negotiations of the free-trade pact.
Mr. Trump and his lieutenants have said there are numerous things they would like to change about the agreement, including gaining more access to Canada’s supply-managed agricultural sectors and increasing U.S. content requirement for North American automobiles.
Editor’s note: This article has been updated to correct the name of the Business Council of Canada.