Canada Matches US Tariff Exemptions Under USMCA Agreement

On August 22, 2023, Canada announced it will eliminate retaliatory tariffs to align with the United States’ exemptions under the United States-Mexico-Canada Agreement (USMCA). Prime Minister Mark Carney confirmed this decision, stating that Canada will include the exemptions that the US has granted on Canadian goods, which protect a significant portion of trade from tariffs. This strategic move aims to reset trade relations between the two countries.

During a press briefing, Carney highlighted the importance of the USMCA, describing it as “the best trade deal” for Canada. He emphasized that while the current agreement differs from its predecessor, it remains more advantageous than agreements held by other nations. The Prime Minister’s remarks followed a phone conversation with US President Donald Trump and a Cabinet meeting earlier that day.

Trade Relations Reset

Carney’s announcement comes at a critical time as the USMCA is set for review in 2026. He noted that the commitment from the US to the core principles of the agreement has maintained a low average tariff rate on Canadian goods, allowing over 85% of Canada-US trade to remain tariff-free. This is beneficial for Canadian and Mexican businesses, which can access preferential treatment under the USMCA.

In the past, former Prime Minister Justin Trudeau implemented retaliatory tariffs in response to US tariffs. However, these were lifted following the US’s exemption of goods covered by the free trade agreement. Carney remarked that most imports from Canada and Mexico continue to benefit from the protections of the USMCA.

Despite the overall benefits of the USMCA, challenges remain. The US has imposed 232 tariffs on certain sectors, including a 50% tariff on steel and aluminum imports, which continues to affect the Canadian economy. Carney stated, “Canada and the United States have reestablished free trade for the vast majority of our goods,” while also affirming that Canada will retain its tariffs on steel, aluminum, and automobiles as negotiations continue.

Preparing for Future Negotiations

Carney firmly rejected the notion that Canada is conceding to US demands, clarifying that the country is simply matching US actions. He stated, “There is a review of the free trade agreement in the spring. We’re starting our preparations.” This proactive stance indicates Canada’s commitment to strengthening its position in ongoing trade discussions.

As both nations prepare for future negotiations, the preservation of the USMCA remains crucial. With more than 75% of Canada’s exports directed to the US, and over 80% of Mexico’s exports following the same path, maintaining a robust trade relationship is vital for economic stability.

Carney’s recent decisions reflect a strategic effort to navigate the complexities of international trade while fostering a favorable environment for Canadian businesses. As discussions progress, the focus will remain on ensuring that trade agreements continue to benefit all parties involved.