Canada has been spared from a new wave of US tariffs.
The new tariff plan, which was unveiled Wednesday, does not impose additional tariffs on Canada and Mexico. However, it comes with a potential “fallback” clause that could see new levies introduced if certain justifications for the previous tariffs are no longer valid.
US President Donald Trump’s recent executive order offers some relief to the country, although the broader economic tension between the two neighbors continues to simmer.
According to Goldman Sachs analysts, Canada and Mexico received more favorable treatment than anticipated. "The executive order continues to exempt USMCA-compliant imports from the 25% tariff on Canada and Mexico," they wrote. "We had expected at least an incremental tariff increase on both countries."
The order stipulates that if the exemption is lifted in the future, USMCA-compliant goods and energy products will remain duty-free, while non-compliant products could face a 12% tariff rate, with notable exceptions for energy and potash.
Temporary relief
Despite the temporary relief, the automotive industry in Canada remains on edge, with Prime Minister Mark Carney noting that the previously announced 25% tariffs on Canadian steel, aluminum, and automobiles will still take effect within hours.
Canada’s federal government had already retaliated against US tariffs by imposing a 25% tax on C$30 billion ($21 billion) worth of US goods, including targeted items such as spirits, wine, and orange juice. These tariffs, designed to strike at US industries, will remain in place until all levies on Canadian products are lifted.
Carney is expected to announce today Canada’s next steps in response to the tariffs.
Candace Laing, head of Canada’s Chamber of Commerce, expressed concern about the wider economic ramifications. "The world is waking up today to a reality that Canada has been living with for months," she said in a statement. "The tariffs mean businesses around the world have had their uncertainty expanded… a chain reaction of tariffs and counter-tariffs will have a real and distressing economic impact on Americans, Canadians, and the global economy."
The announcement of this tariff framework has had a tangible effect on financial markets, with Canada’s dollar appreciating in response. The loonie, which has been weighed down by the ongoing trade conflict, saw a boost following news of the exemption.
Goldman Sachs analysts further noted that while the new reciprocal tariff rates primarily target non-US content of goods, this distinction could help mitigate some of the negative effects for Canada and Mexico. "The exclusion of US content would have been most important for Canadian and Mexican imports," the analysts wrote, although this is unlikely to be a crucial factor for imports in general.