Trump’s Canada tariff carve-out spares most products — for now

President Trump’s top-line tariffs of 35 percent on Canada are among the highest in the world. However, most imports from America’s northern neighbor could be spared thanks to sweeping exemptions under the U.S.-Mexico-Canada Agreement (USMCA) negotiated during Trump’s first term.

The USMCA allows products to be traded duty-free if they significantly originate from North America — a carve-out that currently applies to some 90 percent of products coming down over the northern border, and could potentially apply to more. 

That means products that originate in Canada, such as minerals, most agricultural products, and meat and fish (as well as goods taken from outer space), will skirt Trump’s 35 percent tariff. USMCA’s rules of origin also exempt most products that are manufactured in the U.S., Canada or Mexico, even if their components are imported from other countries.

“In theory, anything could qualify for USMCA if the parts and components are available from Canadian, Mexican or U.S. producers,” said Ted Murphy, a customs and trade lawyer. “If you don’t qualify today, you know exactly why you don’t qualify and you can change your behavior tomorrow.”

Compliance with the agreement wasn’t always routine. The Royal Bank of Canada (RBC) estimated that only about 38 percent of Canadian exports to the U.S. in 2024 aligned with the treaty’s rules, although all but 6 percent of exports could eventually be made compliant.

“The juice may not have been worth the squeeze,” Murphy said of why exporters weren’t coming into compliance. “What President Trump has done is change that calculus.”

Now, with companies rushing to declare their imports compliant to avoid higher tariffs, the RBC estimated that America’s effective tariff on Canada in June was about 2.4 percent under a 25 percent blanket tariff, among the lowest of U.S. trading partners.

The specific impact of the 35 percent tariff is also muddied by section-specific levies, such as a 25 percent duty on all foreign cars — an often-fraught spot for American trade negotiations with its North American neighbors as Trump seeks to bring manufacturing back to the U.S.

The president has also instituted 50 percent rates on steel and aluminum, both major Canadian exports to the U.S., which The Globe and Mail estimated as accounting for about 60 percent of American tariff revenue collected from Canada in June. 

Some key Canadian sectors that would ordinarily be USMCA-exempt are subject to specific tariffs imposed earlier this year, including energy and petroleum (10 percent) and lumber (about 25 percent, although this could rise in the coming days).

Other products have remained untouched by Trump. The president has railed against strict Canadian limits on American dairy exports and threatened to tax Canadian dairy into the U.S., but he has not followed through so far. For now, maple syrup and the equipment used for it are also safe, according to an industry group.

The White House’s unpredictable approach to tariffs has posed broader problems for Canadian exporters, said Gaphel Kongtsa, a trade expert at the Canadian Chamber of Commerce — in some ways irrespective of the final rate charged.

“Many of these supply chains are decades old at this point and are mature and require parts and goods going back and forth across the Canadian-U.S. border multiple times before they're finished,” he said. “The predictability and stability that underpin that type of fluid and frequent commerce has been called into question.”

Kongtsa added that ensuring USMCA compliance may be more difficult for smaller businesses without trade specialists or brokers to help them navigate U.S. import rules.

Nathan Janzen, an economist at the Royal Bank of Canada, wrote in an analysis this week that while Canada was in a stronger tariff position than other countries, it could still be dragged down by any American economic downturn.

“The concern remains, though, that U.S. tariff hikes have been so large —and uncertainty so high surrounding their announcements—that U.S. economic growth will slow with negative implications for close U.S. trade partners like Canada,” he wrote.

U.S. Trade Representative Jamieson Greer defended the tariff hikes on Canada this week as preserving America’s negotiating stance. 

“If the president’s going to take an action, and the Canadians retaliate, the United States needs to maintain the integrity of our action, the effectiveness. So, we have to go up,” Greer said on CBS’s "Face the Nation."

Under then-Prime Minister Justin Trudeau, Canada initially instituted reciprocal tariffs in response to Trump. Prime Minister Mark Carney, who assumed office in late April, has largely held off on further escalation and has instead engaged in talks with the White House.

Trump has justified tariffs on Canada as a way of combating what he characterized as a flow of fentanyl over the northern border. Customs and Border Protection seized a total of 3.37 pounds of fentanyl on the Canadian border in June.

While USMCA currently shields the majority of Canadian goods, the agreement is set to be reauthorized in July 2026, a review period during which the White House could seek significant changes, particularly around cars or manufacturing. 

Commerce Secretary Howard Lutnick said on CBS in mid-July that Trump would “absolutely” want to rehash USMCA.

“He wants to protect American jobs. He doesn’t want cars built in Canada or Mexico when they could be built in Michigan and Ohio. It’s just better for American workers,” he said.

Murphy ventured that the 35 percent tariff could be leveraged for future trade negotiations as USMCA reauthorization looms.

“There is a theory that, really, the trade battle with Canada is coming. It’s not here now,” he said.