This 10-point increase from the previous 25 per cent rate came into effect early this morning following a new executive order from U.S. President Donald Trump. While this move may sound like a major blow to Canada’s export economy, the real-world impact may be considerably less severe than the headline number suggests.
The reason: the vast majority of Canadian exports to the U.S. remain protected under the Canada-United States-Mexico Agreement (CUSMA). According to the Bank of Canada, around 95 per cent of goods exported south of the border qualify for duty-free access under the agreement. That means the new 35 per cent tariff will only apply to a small slice of Canadian exports.
Products covered by CUSMA are exempt because they meet strict rules of origin. These rules determine whether a good has been sufficiently made in North America to qualify for tariff-free treatment. For example, an Alberta-raised steak clearly meets the criteria. However, manufactured products like tools or electronics often rely on complex global supply chains, which can disqualify them if too many components come from outside Canada, the U.S., or Mexico.
Achieving CUSMA certification is not always straightforward. Producers must track the origin of materials and ensure that a significant percentage — usually at least 60 per cent — comes from North American sources. They must also demonstrate they’ve added sufficient value through processing or assembly within the region. This process can be expensive, time-consuming, and confusing, especially for smaller businesses.
The new tariffs will most directly impact these small to mid-sized firms, particularly those that rely on imported components from non-CUSMA countries. In some cases, the additional 10 per cent could exceed their profit margins, effectively making sales into the U.S. market unsustainable.
Companies that have avoided pursuing CUSMA certification in the past may now be reconsidering that decision. The cost and complexity of compliance are more palatable compared to a 35 per cent import tax. However, adapting supply chains and revamping sourcing strategies is not something that can be done overnight.
While the broader Canadian export landscape is largely protected under the free trade agreement, the message is clear: businesses that fall outside its umbrella are vulnerable. The increased tariff highlights the importance of regional trade compliance and may signal a more unpredictable trade environment in the future.
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