tl;dr
President Donald Trump has increased tariffs on certain Canadian aluminum imports from 25% to 35% after failed trade talks with Canada. The U.S. justified the hike by accusing Canada of allowing fentanyl exports into the U.S. Despite this, goods under the USMCA trade agreement remain tariff-exempt t...
President Donald Trump has abruptly raised tariffs on certain Canadian aluminum imports from 25% to 35% following a collapse in high-stakes trade talks between Washington and Ottawa. The White House announced this significant escalation in trade tensions late Thursday, months after initially imposing a 25% tariff under emergency powers earlier this year. Canadian officials condemned the move, which they saw as retaliatory, following their imposition of tariffs on U.S. goods.
The Trump administration justified the increased tariffs by accusing Canada of failing to stop the export of fentanyl and other illegal drugs into the United States. The White House noted that despite Canada's long-standing economic partnership and alliance with the U.S., the country allowed the fentanyl trade to grow substantially, contributing to a global crisis. The statement also mentioned Canada’s hostile response to earlier U.S. tariffs instead of seeking cooperative solutions.
Despite the escalating tensions, goods traded under the US-Mexico-Canada Agreement (USMCA) remain exempt from the new tariffs. This exemption helps American companies, particularly in the automotive and manufacturing sectors, continue importing Canadian goods without added duties for the time being. Intense lobbying from U.S. automakers and manufacturers highlighted the risk of disrupting supply chains critical to their operations if tariffs were increased indiscriminately. Cross-border trade in vehicles, auto parts, farm machinery, and electronics is highly integrated, and tariff hikes could hamper the supply of vital components.
With the USMCA carve-out in place, the Bank of Canada estimates that the average effective tariff on Canadian imports into the U.S. will rise from roughly 5% to significantly higher levels due to the new 35% tariff on specific aluminum products. Canada and the U.S. maintain one of the largest trade partnerships worldwide; in 2024, the U.S. imported $475 billion in Canadian goods and services while exporting $440 billion, mainly in cars and industrial goods. The latest tariffs are expected to target Canadian aluminum, steel, lumber, and agricultural products, which could pressure exporters to cut prices or face reduced demand in the U.S. market.
Canadian authorities have yet to issue an official response. However, sources indicate the Canadian Trade Ministry is considering various potential retaliatory measures, mindful of the risks of escalating tit-for-tat trade actions. The U.S. also imposed new tariffs on several other countries with trade surpluses, including India (25%), Taiwan (20%), Switzerland (39%), and South Africa (30%). Thailand and Cambodia face 19% tariffs despite last-minute agreements, and a global minimum tariff rate of 10% has been maintained with potential increases under consideration.
These actions come ahead of looming deadlines for finalizing trade deals, though the White House has not specified when the new tariffs will take effect. Financial markets have so far remained calm, with little movement in the Canadian dollar or South African rand during early Asian trading sessions.