Canada: Canada eliminates 25% retaliatory tariff on USMCA qualifying goods

While Canada and the US continue to negotiate a new economic and security agreement, Canada announced that it will eliminate its 25% retaliatory tariffs on certain USMCA qualifying goods as of September 1, 2025 in an effort to deescalate trade tensions and keep bilateral talks moving forward. The announcement follows a meeting between Prime Minister Carney and President Trump on trade and security. Prime Minister Carney also expressed hope that the USMCA review, scheduled for July 2026, will commence next month.

Details of the tariff elimination have yet to emerge and Canada has yet to amend the relevant surtax order and related CBSA Customs Notice to reflect this change.

What importers and exporters need to know:

• Canada will eliminate its 25% retaliatory tariff on certain USMCA qualifying goods as of September 1, 2025. Once Canada provides details on this tariff elimination, importers should confirm whether their goods are eligible for tariff relief, are USMCA-compliant, and they should adjust their customs clearance processes to account for this update, including considering whether posted financial security commitments will fall in the months ahead.
  • Note: Canada’s Trade Commissioner Service offers a support line to provide help with USMCA compliance. Goods must meet the specific rules of origin to qualify for the USMCA.  
• Canada’s retaliatory tariffs on US origin steel, aluminum and automobiles will remain in place.
• The current state of Canada-US trade negotiations are in flux. It remains to be seen how quickly the US and Canada will negotiate an agreement. As it stands, the average US tariff rate on Canadian origin goods is 5.6 percent. Notably, this is an average rate and many goods remain subject to the US 35% tariff rate on Canadian origin goods.
• It is unlikely that Canada and the US will have a tariff-free trading relationship going forward in respect of steel, aluminum, copper, and autos/trucks.
• The first joint review of the USMCA is scheduled for July 2026, 6 years into the 16-year term of the USMCA. If Canada, the US and Mexico agree to renew the USMCA, it will remain in force for an additional 16-year term, with a subsequent 6-year review scheduled for 2032. If one, or two, party/ies withdraw(s), the USMCA will expire upon completion of its first 16-year term, in 2036. While the intent of the joint review may have been procedural, the process opens the door for large-scale negotiation of the current agreement.

Background

After months of tit-for-tat tariffs on US and Canadian origin goods, both countries agreed to pursue bilateral discussions towards a new economic and security relationship during the mid-June G7 Leaders’ Summit. Prime Minister Carney promised a deal within 30 days, by July 21, 2025 (Trade Deal), failing which Canada would increase its retaliatory tariffs on US origin goods. The deadline was subsequently extended to August 1. However, instead of announcing a new agreement, the US unilaterally ratcheted up tariffs on Canadian origin goods to 35%.

The bilateral discussions, led by Canada’s Ambassador to the United States, kicked off immediately, but were abruptly terminated on June 27 by the US, citing Canada’s intent to implement a unilateral Digital Services Tax (DST) on June 30. In an about-face, on June 29, Canada announced its intention to rescind the DST, providing a path forward for the bilateral discussions.

Cancelling the DST was Canada’s first major concession in the bilateral discussions. The cancellation follows other strategic announcements by Canada to address concerns voiced by the US administration on defence spending and border security (e.g. increasing Canada’s NATO defence spending to 2% of annual GDP by the end of 2025, and more recently by 5% of annual GDP by 2035, increasing border security spending commitments and the tabling of the Strong Borders Act). However, a number of historical trade irritants between the US and Canada remain, such as Canada’s supply management system designed to protect the Canadian dairy industry and government intervention in Canada’s softwood lumber industry.

A tariff-free US-Canada trading relationship going forward is unlikely; however, reductions in current tariff rates and the introduction of other protectionist trade measures (e.g. use of tariff rate quotas by the US to control imports of certain Canadian steel, aluminum and autos) remain possible.

Summary of Current Canada-US Tariffs