Trump’s Tariffs on Canada: A New Trade Flashpoint
On July 31, 2025, President Donald Trump signed an executive order officially raising tariffs on Canadian goods entering the United States from 25% to 35%, effective August 1. This move marks a significant escalation in trade tensions between the two countries and has already sent ripples through key industries on both sides of the border.
Background and Justification
Trump’s administration cited national security concerns, particularly the flow of fentanyl and other illicit drugs across the northern border, as the primary reason for the tariff hike. The executive order was issued under the International Emergency Economic Powers Act (IEEPA), framing the drug crisis as an “unusual and extraordinary threat” to the United States.
While the tariffs apply broadly, goods compliant with the Canada-U.S.-Mexico Agreement (CUSMA) remain exempt, which covers approximately 90% of Canadian exports. However, the remaining 10% which includes several high-value sectors is now subject to steep duties.
Industries and Items Affected
Here’s a breakdown of the sectors most impacted by the new tariffs:
Automotive Sector
- Tariff Impact: 35% on non-CUSMA-compliant auto parts and the non-U.S. portion of assembled vehicles.
- Example: Canadian-made transmissions and brake systems not meeting CUSMA origin rules.
- Effect: Increased costs for North American automakers and potential price hikes for consumers.
Steel and Aluminum
- Tariff Impact: Doubled to 50% across all countries, including Canada.
- Example: Rolled steel used in construction and aluminum sheets for packaging.
- Effect: Major blow to Canadian producers, especially in Ontario and Quebec, which are top suppliers to the U.S.
Chemicals and Pharmaceuticals
- Tariff Impact: 35% on non-CUSMA-compliant goods.
- Example: Industrial chemicals and generic drugs manufactured in Canada.
- Effect: Disruption in supply chains and increased costs for U.S. manufacturers relying on Canadian inputs.
Consumer Goods
- Tariff Impact: 35% on items like apparel, furniture, and packaged foods not meeting CUSMA rules.
- Example: Canadian-made winter gear and maple syrup.
- Effect: Retailers may pass costs onto consumers or seek alternative suppliers.
Critical Minerals and Energy
- Tariff Impact: Lower rate of 10%, recognizing strategic importance.
- Example: Potash, uranium, and hydroelectric power.
- Effect: Less disruption, but still a concern for long-term competitiveness.
Political and Diplomatic Fallout
The tariff hike comes amid strained diplomatic relations. Prime Minister Mark Carney’s recent announcement supporting Palestinian statehood reportedly soured negotiations. Trump posted on Truth Social that Canada’s stance “will make it very hard for us to make a Trade Deal with them”.
Despite ongoing talks, no deal was reached before the deadline, and Canada now faces the full brunt of the tariff increase. Canadian officials have downplayed the urgency, citing the CUSMA exemptions, but economists warn of potential long-term damage to trade and investment.
Summary
- Tariffs Raised: From 25% to 35% on Canadian goods, effective August 1, 2025.
- Exemptions: CUSMA-compliant goods (≈90% of exports) remain tariff-free.
- Industries Hit Hardest: Automotive, steel/aluminum, chemicals, consumer goods.
- Political Trigger: Canada’s support for Palestinian statehood and alleged inaction on fentanyl trafficking.
Conclusion
Trump’s tariff escalation is more than a trade maneuver it’s a geopolitical statement. While the exemptions under CUSMA soften the blow, the remaining sectors face real economic strain. For Canada, the challenge lies in navigating a complex diplomatic landscape while protecting its industries. For the U.S., the tariffs may serve short-term political goals but risk long-term disruption in supply chains and consumer markets.
Whether this is a temporary flashpoint or the beginning of a deeper trade rift remains to be seen. But one thing is clear: the economic relationship between Canada and the U.S. just got a lot more complicated.
How Peacock Tariff Consulting Can Help Businesses Thrive
When the rules shift overnight, agility and expertise are essential. Peacock Tariff Consulting specializes in guiding businesses through volatile trade landscapes like the one unfolding now. Here’s how we can help:
Tariff Impact Assessments
- Custom analysis of how the new tariffs affect your bottom line
- Item-by-item breakdown across your supply chain
CUSMA Compliance Strategy
- Determine which goods qualify for exemption
- Streamline documentation and certification processes
Government Relations & Advocacy
- Connect with policy-makers to represent business concerns
- Craft compelling arguments for exemptions or adjustments
Supply Chain Diversification
- Identify alternative sources and routes to reduce tariff exposure
- Scenario planning for long-term trade disruptions
HS Code Audits & Optimization
- Review how your goods are classified and explore strategic reclassification
- Maximize chances of falling under lower or zero-duty brackets
Training & Workshops
- Empower your team with the latest trade knowledge
- Focus on compliance, customs reporting, and tariff management