Carney says over 85% of Canada-US trade remains tariff-free

Carney says over 85% of Canada-US trade remains tariff-free

The Bank of Canada has announced that over 85% of Canada-US trade remains tariff-free, despite recent tariff increases. This revelation comes amidst a complex trade landscape where the U.S. has imposed higher tariffs on certain Canadian goods, particularly those not compliant with the Canada-U.S.-Mexico Agreement (CUSMA).

With the signing of an executive order, U.S. President Donald Trump increased Canada's tariff rate to 35% on non-CUSMA-compliant goods, effective at 12:01 a.m. on July 2, 2025. This is a 10% increase from the previous 25% rate. However, the impact of this tariff increase is expected to be limited due to the vast majority of Canadian exports being CUSMA-compliant.

According to the Bank of Canada, an estimated 95% of goods sent to the U.S. qualify under CUSMA, meaning they are exempt from the new higher tariff rates. This exemption is crucial for maintaining normal trade flows, as stated by Eric Miller, president and CEO of Rideau Potomac Strategy Group.

The CUSMA-compliant products are those that meet specific criteria, such as a significant portion of the product being made in Canada with Canadian inputs. For instance, a steak born, raised, and prepared in Alberta would be exempt, but a screwdriver with components sourced from outside Canada would not.

The tariff increase has the potential to impact small to medium-sized businesses that rely on components made in countries outside Canada. These businesses may struggle to find alternative suppliers or meet the CUSMA certification requirements, leading to increased costs and potential loss of profitability.

Despite the tariff increase, sector-specific tariffs remain in effect. For example, a 50% tariff on steel and aluminum, and a 25% tariff on cars and auto parts, have been in place. These rates are not new but are significant for the affected industries.

Overall, the Bank of Canada's announcement underscores the resilience of Canada-US trade, with over 85% of trade remaining tariff-free. However, businesses that are not CUSMA-compliant will face significant challenges in the coming months.

References:
[1] https://www.cbc.ca/news/business/what-in-canada-is-subject-to-35-per-cent-tariff-1.7600029
[2] https://www.reuters.com/world/us/us-trade-gap-skids-2-year-low-tariffs-exert-pressure-service-sector-2025-08-05/