In light of Trump's situation, Canada needs to strategize carefully
In the midst of the Trump administration's tariff policies, Canadian products and services entering the United States face an effective tariff rate of 35%, a significant increase from the previous 25%. This rate is higher than most other countries, including Thailand and Cambodia, which face a 19% tariff, and lower than Brazil's 50% tariff.
On August 7, 2025, the US raised tariffs on Canadian goods from 25% to 35% due to Canada's "ongoing inaction and retaliation," and introduced a 40% transshipment duty aimed at goods rerouted through other countries to avoid tariffs. By contrast, President Trump set a 19% tariff on imports from Thailand and Cambodia, reflecting somewhat more moderate tariff treatment toward those Southeast Asian countries.
J.P. Morgan research indicates the average effective tariff rate across countries is expected to settle around 15-18%, but Canada’s current rate of 35% is significantly above this average. This higher tariff rate could lead to increased prices, with Yale University's Budget Lab predicting that tariffs will cause prices to rise by 1.8%, amounting to a $2,400 bill per household by 2025.
The USMCA, which is set to expire in 2036, is designed to boost the North American economy. However, the urgency is to boost the Canadian economy, which suffers from chronic low productivity, to avoid getting fleeced on the international stage. Canadian exports to the US, which accounted for 93% of all Canadian exports in 2024, have lost ground compared to other countries, excluding China, suggesting that Canadian businesses are ill-equipped to survive in a more protectionist world.
Donald Trump's threat to withdraw completely from the USMCA would face backlash from American businesses. The US cannot modify the USMCA without the consent of Canada and Mexico, and Article 34.7 allows the USMCA to be renegotiated six years after it comes into effect, but changes must be consensual. Canadian products that comply with the Canada-United States-Mexico Agreement (CUSMA) are exempt from the 35% tariffs.
The decision to overturn general tariffs on "fentanyl" imposed on Canada could take a year, as the case may end up at the Supreme Court. It is important for Canadian businesses to consult studies such as Yale University's Budget Lab, the University of Sherbrooke's study, Scotia Bank data, and Royal Bank analysis for insights on the Canadian economy.
Sources: [1] "Trump's Tariffs: How They Affect Canada and the USMCA" - The Globe and Mail, August 2025 [2] "Canada's Effective Tariff Rate Under Trump Administration's Tariffs" - J.P. Morgan Research, August 2025
- The escalation of tariffs on Canadian goods amidst the Trump administration's policies has raised concerns about Canada's economic future, particularly in light of the USMCA's expiry in 2036, as Canadian businesses struggle to compete in a more protectionist world.
- The impact of war-and-conflicts, represented by the trade tariffs, on Canadian culture and politics is evident in the USMCA negotiations, policy-and-legislation shifts, and general-news discourse, with the future of Canadian-US trade relations dependent on the consensus of all parties involved.
