{"id":296993,"date":"2025-07-27T22:46:22","date_gmt":"2025-07-27T22:46:22","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/296993\/"},"modified":"2025-07-27T22:46:22","modified_gmt":"2025-07-27T22:46:22","slug":"in-a-world-of-tariff-pain-usmca-gives-canada-an-edge-for-now","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/296993\/","title":{"rendered":"In a world of tariff pain, USMCA gives Canada an edge \u2013 for now"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Steel coils at ArcelorMittal Dofasco’s mill in Hamilton, Ont., in June. The majority of Canadian goods that flowed across the border in May were not subject to duties, a Globe analysis shows, but exports have fallen more sharply than most of America’s other major trading partners.Cole Burston\/Getty Images<\/p>\n

With countries lining up to sign U.S. trade deals that incur staggering tariffs on what they sell to Americans, it\u2019s been a reminder for Canada\u2019s own tariff-shocked economy: We\u2019ve got it pretty good, at least for the time being.<\/p>\n

That\u2019s likely <\/b>not how Canadians feel, having endured months of U.S. President Donald Trump\u2019s threats to cripple this country\u2019s economy. And with specific industries such as <\/b>autos and steel in dire straights, there\u2019s no question Mr. Trump\u2019s trade war has been bruising. <\/p>\n

But as reality sets in that the highest U.S. import duties in a century are here to stay, it\u2019s reinforced the value of the United States-Mexico-Canada Agreement, which has shielded Canada, and to a lesser extent Mexico, from the worst of Mr. Trump\u2019s trade actions. <\/p>\n

A Globe and Mail analysis of U.S. trade data shows the majority of Canadian goods flowed across the border duty-free in May, with Canada enjoying an effective tariff rate that was well below that of most other countries, including Mexico.<\/p>\n

Analysis: Harsh, informal, wide-ranging: How Trump\u2019s trade talks have changed<\/a><\/p>\n

Yet despite that advantage on paper, Canada\u2019s exports to the U.S. have fallen more sharply amid the global <\/b>trade war than most of our southern neighbour\u2019s other <\/b>major trading partners, save for China, suggesting Canadian companies may be ill-prepared to compete for U.S. market share in a protectionist world.<\/p>\n

What\u2019s more, Canada\u2019s USMCA protection could prove to be a double-edged sword. It puts tremendous pressure on Canadian negotiators to preserve the trade agreement when it comes up for renewal in 2026 \u2013 something Mr. Trump could use to his advantage.<\/p>\n

\u201cI don\u2019t think everything\u2019s getting resolved in the next couple of weeks with Canada,\u201d said Ted Murphy, co-leader of the global arbitration, trade and advocacy practice at U.S. law firm Sidley Austin LLP, referring to the Aug. 1 deadline Mr. Trump has set for a Canada-U.S. tariff agreement. <\/p>\n

Indeed, on Friday Mr. Trump told reporters<\/a> the two countries may not reach a deal by the beginning of August, and said \u201cCanada could be one where there\u2019s just a tariff, not really a negotiation.\u201d<\/p>\n

Whatever happens in the next few weeks, \u201cit\u2019s all open come next year,\u201d said Mr. Murphy.<\/p>\n

He expects Mr. Trump to look to renegotiate the USMCA next year, and to push for higher U.S. content in automobiles, better access to Canada\u2019s dairy market<\/a> and a range of other things that tilt continental trade in his country\u2019s <\/b>favour. <\/p>\n

Since returning to the White House in January, Mr. Trump has pursued his protectionist agenda along two lines. <\/p>\n

Open this photo in gallery:<\/a><\/p>\n

An employee loads palates of copper cathodes onto a train at the Glencore-owned Canadian Copper Refinery in Montreal in July. The Trump administration has also launched trade investigations into other sectors, including copper and lumber, which may result in additional industry tariffs.ANDREJ IVANOV\/AFP\/Getty Images<\/p>\n

He\u2019s placed sectoral tariffs<\/a> on three industries \u2013 autos, steel and aluminum \u2013 using Section 232 of the Trade Expansion Act of 1962, and launched investigations into other sectors, including copper, lumber and pharmaceuticals, that may result in additional industry tariffs. <\/p>\n

And he has hit countries with blanket tariffs \u2013 which he calls \u201creciprocal tariffs\u201d <\/a>or, in the case of Canada, Mexico and China, \u201cfentanyl tariffs\u201d\u2013 using the International Emergency Economic Powers Act.<\/p>\n

For Canada and Mexico, the 25-per-cent IEEPA tariff \u2013 which Mr. Trump claims is needed to push both countries to increase border security \u2013 has been significantly watered down. Two days after the levy came into force in early March, the President offered an exemption for all products that comply with USMCA rules of origin. Mr. Trump has threatened to raise this tariff to 35 per cent but has <\/b>suggested the exemption will remain in place. <\/p>\n

Tony Keller: As Trump\u2019s tariff walls rise, Canada\u2019s negotiating leverage is shrinking<\/a><\/p>\n

That carve-out has shielded a significant portion of Canadian exports and made the trade war for Canada mostly about the three industries targeted by sectoral tariffs. And it means Mr. Trump\u2019s headline-grabbing tariff threats against the entire Canadian economy are proving less impactful than many feared earlier in the year. <\/p>\n

\u201cWhen we look outside of those very important sectors, the effective tariff that faces most Canadian goods and services is very low,\u201d Prime Minister Mark Carney said after meeting with premiers earlier this week. \u201cThey\u2019re lower than in other countries.\u201d <\/p>\n

In the five deals announced so far by Mr. Trump, the United Kingdom accepted a 10-per-cent tariff rate,<\/a> and subsequent agreements with Vietnam, Indonesia and the Philippines raised the tariff bar from there. <\/p>\n

When Japan accepted a flat 15-per-cent tariff<\/a>, markets cheered because it was better than what Mr. Trump had threatened. On Thursday, the President ramped up his threats on countries that don\u2019t do deals by his Aug. 1 deadline, warning they\u2019ll face duties of between 15 per cent and 50 per cent. <\/p>\n<\/p>\n

There\u2019s considerable debate among economists about the effective U.S. tariff rate on Canadian goods, which will change over time depending on which threats Mr. Trump follows through on, changing trade flows, and the portion of Canadian goods that can ultimately comply with USMCA rules. But so far, the data suggest the tariff wall remains low, at least on average. <\/p>\n

By one measure \u2013 calculated duties as a share of total imports \u2013 the effective tariff rate stood at 1.9 per cent in May, according to a report by Royal Bank of Canada, as well as a Globe and Mail analysis of U.S. Census Bureau trade data. That\u2019s up from a paltry 0.1 per cent in January, but well below other countries.<\/p>\n

Mexico\u2019s tariff rate sat at 4.3 per cent, for example, while the global average was 8.7 per cent, according to RBC analysis of the data. <\/p>\n

Editorial: Trump\u2019s tariff shakedown takes shape<\/a><\/p>\n

Canada\u2019s apparent tariff advantage is also born out in U.S. Customs and Border Protection numbers that track IEEPA tariff revenue by country. For Canada, the revenue collected so far is equal to just 1.6. per cent of total exports to the U.S., compared with 3.5 per cent for Mexico, although this doesn\u2019t account for sectoral tariff revenues.<\/p>\n

Economists warn the data are being skewed by shifting trade flows. U.S. importers have stopped bringing in some Canadian goods that carry higher tariffs. For instance, Canadian steel imports plunged 34 per cent in May compared with the year before. And this has had the effect of artificially lowering Canada\u2019s overall tariff rate. <\/p>\n

\u201cIt all comes down to essentially ease of substitution, from the importer\u2019s perspective,\u201d said RBC senior economist Claire Fan. \u201cJust how easily and quickly can the U.S. find domestic alternatives that are comparable, at cost, after comparing to whatever they were importing plus tariffs.\u201d<\/p>\n<\/p>\n

Moreover, any calculation of U.S. tariff rates is a moving target. Mr. Trump doubled tariffs on all steel and aluminum imports to 50 per cent in June. Copper tariffs are expected to take effect on Aug. 1 and the President has threatened further tariffs on pharmaceuticals for the same day. These are Sec. 232 tariffs and aren\u2019t shielded by the USMCA carve-out offered for the IEEPA tariffs.<\/p>\n

RBC estimates that the effective tariff rate should converge around 5 per cent as things shake out.<\/p>\n

Derek Holt, head of capital markets economics at the Bank of Nova Scotia, expects a 6.5-per-cent effective tariff rate if Mr. Trump proceeds with his threats. As long as the USMCA carve-out remains in place, an increase in the IEEPA tariff from 25 per cent to 35 per cent should be a \u201cmanageable tariff shock,\u201d he said, while the sectoral tariffs are \u201cthe greatest vulnerability.\u201d<\/p>\n

For Canada, a key economic variable is the proportion of exports to the U.S. that comply with USMCA rules, and therefore <\/b>can claim the tariff exemption. These rules vary from product to product, but generally require a certain percentage of the inputs in a <\/b>product to be sourced from within North America. <\/p>\n

In recent months, companies rushed to become USMCA compliant. In May, roughly 56 per cent of U.S. imports from Canada fell under USMCA trade rules, according to U.S. Census Bureau data, up from 34 per cent in January. <\/p>\n

In the case of crude oil, Canada\u2019s single-largest export to the U.S., USMCA compliance soared to 99 per cent in May from 20 per cent in January.<\/p>\n

Open this photo in gallery:<\/a><\/p>\n

U.S. President Donald Trump speaks to the media after arriving at Glasgow Prestwick Airport on Friday. Many Canadians have been racing to become USMCA compliant.Andrew Harnik\/Getty Images<\/p>\n

For many companies, getting the USMCA-compliant stamp is just a matter of filling out the right paperwork. They may have been technically compliant for years, but didn\u2019t see the value in dealing with compliance costs because tariff rates were so low outside of the continental free-trade agreement. <\/p>\n

For other companies, particularly in manufacturing industries with global supply chains, getting USMCA compliance can be a much bigger lift. Even so, economists think more than 90 per cent of Canadian goods could eventually comply with USMCA rules, but it may take some time to get there. <\/p>\n

In the meantime, companies seem to be finding other ways to skirt U.S. tariff rules. According to U.S. Census Bureau data, around 90 per cent of Canadian goods entered the U.S. tariff-free in May, even though only 56 per cent ticked the USMCA-compliant box. <\/p>\n

It\u2019s not entirely clear how to explain this discrepancy since the IEEPA tariffs are meant to apply to all non-USMCA complaint goods. <\/p>\n

Several trade experts, lawyers and customs brokers said there may be a problem with data collection and classification, and that the 90 per cent number appears way too high. <\/p>\n

But some suggested other plausible theories. Chapter 98 of the U.S. Harmonized Tariff Schedule contains a number of rules that allow companies to skirt tariffs in certain circumstances, said Lawrence Friedman, a Chicago-based trade lawyer and partner with Barnes, Richardson & Colburn, LLP. <\/p>\n

These include rules around sending products back and forth across the border for repair, packaging or alteration, as well as provisions for certain medical and agricultural products. <\/p>\n

\u201cWe\u2019re seeing a lot of people look at all kinds of duty mitigation,\u201d Mr. Friedman said.<\/p>\n

Other companies are reducing their tariff exposure by using bonded warehouses, foreign-trade zones and temporary importation bonds, as well as de minimis rules that allow shipments worth less than US$800 to enter tariff-free.<\/p>\n

\u201cThere\u2019s all these other programs that would account for the difference in percentage,\u201d said Jill Hurley, senior director of global trade consulting at the North American customs brokerage Livingston International. <\/p>\n

However, <\/b>she added that <\/b>some of the confusion in the data could also stem from chaos created by Mr. Trump\u2019s haphazard approach to trade policy, which has sent customs agents and brokers scrambling. \u201cIt\u2019s a mess,\u201d she said.<\/p>\n

In that way, Canada is in the same boat as every other flummoxed American trading partner, no matter what upper hand USMCA may give us. <\/p><\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: Steel coils at ArcelorMittal Dofasco’s mill in Hamilton, Ont., in June. The majority…\n","protected":false},"author":2,"featured_media":296994,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5311],"tags":[6934,6925,6935,1500,6918,6936,943,6917,6930,6931,6927,6919,6916,1700,2266,728,6929,6923,6946,6920,6921,1234,6926,388,3611,6607,603,6941,6942,6944,6939,6943,6937,6940,6922,6932,6933,285,3027,6938,6924,53,183,6928,49,978,727,659,263,6945],"class_list":{"0":"post-296993","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-united-states","8":"tag-alberta","9":"tag-arts-news","10":"tag-bc","11":"tag-breaking-news","12":"tag-breaking-news-video","13":"tag-british-columbia","14":"tag-canada","15":"tag-canada-news","16":"tag-canada-sports","17":"tag-canada-sports-news","18":"tag-canada-trafficcanada-weather","19":"tag-canadian-breaking-news","20":"tag-canadian-news","21":"tag-economy","22":"tag-education","23":"tag-environment","24":"tag-federal-government","25":"tag-foreign-news","26":"tag-globe-and-mail","27":"tag-globe-and-mail-breaking-news","28":"tag-globe-and-mail-canada-news","29":"tag-government","30":"tag-life-news","31":"tag-lifestyle","32":"tag-local-news","33":"tag-manitoba","34":"tag-national-news","35":"tag-new-brunswick","36":"tag-newfoundland-and-labrador","37":"tag-northwest-territories","38":"tag-nova-scotia","39":"tag-nunavut","40":"tag-ontario","41":"tag-pei","42":"tag-photos","43":"tag-political-news","44":"tag-political-opinion","45":"tag-politics","46":"tag-politics-news","47":"tag-quebec","48":"tag-sports-news","49":"tag-technology","50":"tag-travel","51":"tag-trudeau","52":"tag-united-states","53":"tag-us","54":"tag-us-news","55":"tag-usa","56":"tag-world-news","57":"tag-yukon"},"share_on_mastodon":{"url":"","error":"Validation failed: Text character limit of 500 exceeded"},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/296993","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=296993"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/296993\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/296994"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=296993"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=296993"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=296993"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}