Ottawa regroups as U.S. sectoral tariffs on steel, aluminum, autos and lumber stay put, a proposed forced-labour levy looms, and Beijing opens a fresh front on Canadian farm goods
OTTAWA, July 13, 2026. Canada opened the second week of July with its trade file frozen in place. Almost two weeks after Washington formally declined to extend the Canada United States Mexico Agreement, and with President Donald Trump’s sectoral tariffs still cutting into exports of steel, aluminum, automobiles and softwood lumber, Prime Minister Mark Carney’s government is regrouping rather than signing. Officials who spoke openly this spring about a summer breakthrough now describe a longer campaign, one that folds the fight over tariffs into a drawn out review of the continental trade pact and that may not deliver meaningful relief until well into 2027.
The mood shift is the story. There was no single dramatic announcement to mark the moment, but the accumulated weight of the past several days has hardened a new consensus in Ottawa and in industry boardrooms across the country. The tariffs are not going away soon. The review of the agreement Canadians call CUSMA and Americans call USMCA is now the main arena, and it is expected to stretch across much of the next year. Meanwhile a proposed United States levy tied to forced labour has opened a fresh irritant, and China has escalated its own pressure on Canadian farm exports. Taken together, the developments leave Canadian importers and exporters facing a trade landscape that is more uncertain, and more expensive, than at any point since the current dispute began.
A deadline that came and went
The turning point arrived on July 1, when United States Trade Representative Jamieson Greer told his Canadian and Mexican counterparts that Washington would not agree to extend CUSMA beyond its scheduled 2036 expiry. The message followed a trilateral joint review meeting that included Canada’s minister responsible for United States trade, Dominic LeBlanc, and Mexico’s economy secretary, Marcelo Ebrard. Under the terms written into the pact, the parties had until that date to decide whether to renew the agreement out to 2042 or to shift instead to a series of annual reviews. The renewal option lapsed.
The practical effect is more subtle than a rupture. CUSMA remains in force. Rather than terminating, the agreement now moves onto a track of annual reviews running until 2036, and the parties can still agree to extend it at any one of those checkpoints. In that sense the pact survived Canada Day. What it lost was certainty. Businesses that plan cross border supply chains a decade out now face a document with a countdown attached, and negotiators on all three sides confront a process that Washington appears content to keep open ended.
For Ottawa, the immediate objective has not changed. LeBlanc said after the July 1 meeting that Canada intends to press for substantive discussions on the sectoral tariffs weighing on steel, aluminum, automobiles and softwood lumber, and that Canada was approaching those talks from what he called a position of strength. Two days later, on July 3, LeBlanc and Canada’s chief trade negotiator, Janice Charette, briefed provincial and territorial trade ministers, reiterating that Canada would keep engaging constructively while defending its core interests. The United States, for its part, has signalled it wants far more than a simple renewal, including changes to automotive rules of origin and expanded access to Canada’s protected dairy market.
The sectoral tariff wall
The heart of Canada’s grievance is the set of duties Washington has imposed under Section 232 of United States trade law, the national security provision the Trump administration has used to justify tariffs on entire categories of goods. Canadian steel entering the United States now faces a tariff of 50 per cent, and aluminum faces the same rate. Automobiles and parts carry a 25 per cent duty. Copper has been drawn into the same framework, and softwood lumber sits under a separate 10 per cent Section 232 charge that stacks on top of long standing anti dumping and countervailing duties. Carney has repeatedly described these measures as a violation of the trade agreement itself, arguing that they strip away the duty free access CUSMA was supposed to guarantee.
The damage is measurable. According to figures cited by the Bank of Canada in its most recent monetary policy report, the industries directly exposed to the sectoral tariffs account for roughly 1 per cent of Canadian output and employment but close to 15 per cent of the country’s exports. Steel shipments to the United States, Canada’s dominant market, have fallen by about half since the 50 per cent duty took hold. Aluminum producers face the same headline rate, while derivative products made substantially of aluminum are hit with a 25 per cent charge. The central bank noted that production and employment have declined in these sectors, though not as sharply as exports, and that manufacturers further down the value chain have begun shedding jobs as higher input costs bite.
Ottawa has tried to cushion the blow. In June the federal government announced it would extend key steel and aluminum tariff measures for another year, including a tariff rate quota regime covering steel imports from countries outside CUSMA and a package of horizontal relief for eligible steel and aluminum inputs. That relief is targeted at goods used in automotive and aerospace manufacturing and in public health, health care, public safety and national security applications, along with United States aluminum used in manufacturing, food and beverage packaging and agricultural production. The government has also committed roughly 1.5 billion dollars in new tariff support, anchored by a Business Development Bank of Canada program for steel, aluminum and copper dependent firms, plus a further 500 million dollars for tariff affected businesses across all sectors.
Yet the counter measures cut both ways. Canada has maintained its own retaliatory tariffs on a long list of United States products, a Buy Canadian procurement policy and tighter import quotas, all of which the Bank of Canada credits with helping to support domestic production. Those same measures raise costs for Canadian companies that rely on American inputs, and they keep the overall tariff burden on the economy elevated. The result is a standoff in which both governments are absorbing pain, and in which the path to de escalation runs through a negotiating process that has just been stretched out over years rather than weeks.
Softwood lumber, a familiar battle
No file better illustrates the endurance of Canada United States trade friction than softwood lumber, a dispute that predates the current tariff war by decades. The pressure intensified in late 2025, when the United States Commerce Department more than doubled its countervailing duty on Canadian lumber and nearly tripled its anti dumping duty, lifting the combined rate to about 35 per cent. The United States Lumber Coalition, which represents American producers, welcomed the increase, arguing that it was a proportionate response to what it characterizes as unfair Canadian trade practices, and pointing to falling lumber prices as evidence that Canadian and industry warnings were overstated.
There is, however, a possible reprieve on the horizon. In its preliminary results for the seventh administrative review, released on April 9, Commerce signalled it would cut the anti dumping rate to 10.66 per cent from 20.56 per cent and trim the countervailing rate to 14.17 per cent, bringing the combined burden down from roughly 35.16 per cent to about 24.83 per cent. Final rates are expected in August at the earliest, and potentially not until October if the timeline is fully extended. Layered on top of that is the separate 10 per cent Section 232 duty, which took effect in late February for an initial 150 day period running to July 24 unless it is renewed, extended or modified.
The cumulative toll has been heavy. By early 2026 Canadian lumber exports were running roughly 20 per cent below their 2024 average, and duties paid by Canadian softwood producers over the life of the dispute have surpassed 8 billion dollars, according to figures reported by industry and Canadian officials. Canadian negotiators have named softwood lumber, alongside steel, aluminum and autos, as a sector where they want relief in any broader settlement. Whether Washington is willing to trade concessions on lumber for movement elsewhere remains one of the central unknowns of the coming review.
A new front on forced labour
While the sectoral tariffs are a known quantity, the newest source of friction is a proposed United States levy tied to forced labour in supply chains. In March the United States Trade Representative launched investigations under Section 301 of United States trade law into 60 economies it accused of failing to adequately prohibit or enforce bans on imports made with forced labour. A report released in early June named Canada among a group that also includes Mexico, the European Union, the United Kingdom, Ecuador, Indonesia and Pakistan, countries that Washington says have forced labour import prohibitions on paper but do not enforce them effectively. For that group the office proposed additional duties of 10 per cent. Economies judged to have no meaningful regime at all would face 12.5 per cent.
The proposal comes with important carve outs. The United States Trade Representative has indicated that the new duties would not apply to CUSMA compliant goods from Canada or Mexico, nor to products already subject to the Section 232 tariffs, along with a handful of other exempt categories. Because a large share of Canadian trade already moves under CUSMA preferences, the practical reach of the measure may prove narrower than the headline rate suggests. Even so, the mere existence of a second tariff track, resting on a different legal theory and a different set of demands, complicates Canada’s negotiating position and adds another variable for exporters trying to plan. Written comments on the proposal were due by July 6, and the office held public hearings on July 7.
Ottawa has pushed back firmly. In a written submission to the United States Trade Representative, made public around July 8, the Government of Canada said it remains committed to working closely with the United States to eradicate forced labour from global supply chains, but added that it respectfully submits there is no basis for the imposition of additional Section 301 duties on Canadian goods. Canada already requires companies to file annual reports on efforts to root out forced labour, and last month the government tabled new legislation, Bill C-35, to strengthen enforcement. The bill would create a public list of products linked to forced labour in specific regions and would require importers to demonstrate that goods from those regions were not made with forced labour. Carney, for his part, said the proposed American tariff did not come as a surprise, noting that Washington had signalled its intention to replace expiring baseline global tariffs, and that new Canadian enforcement rules were already in the works.
Beijing turns up the pressure
Canada’s trade troubles are not confined to Washington. China has opened its own front, and the timing has sharpened the sense in Ottawa of being squeezed from two directions at once. Effective July 1, Beijing imposed a preliminary anti dumping tariff of 73.5 per cent on imports of Canadian pea starch, the result of an investigation that ran more than ten months. The measure hits a niche but growing export, and Canadian producers and industry groups have warned that it signals continued willingness by China to use trade remedies as leverage even as broader relations show tentative signs of thaw.
The pea starch duty stands in contrast to a partial detente reached earlier in the year on canola, one of Canada’s largest agricultural exports. After Prime Minister Carney visited Beijing in January and reached an initial understanding, China’s Ministry of Commerce issued a final determination on February 28 setting an anti dumping duty of 5.9 per cent on Canadian canola seed for a period of five years, bringing the combined rate down to roughly 15 per cent from a punishing preliminary level. Beijing also committed to exempting Canadian canola meal, lobster, crab and peas from a set of retaliatory tariffs during 2026. The new pea starch levy suggests that any thaw is selective, and that individual product lines remain vulnerable to sudden action.
For Canadian agriculture, the China file is a reminder that diversification away from the United States, a strategy Carney has actively promoted through outreach to India, Japan, Australia and other Pacific partners, carries its own risks. Markets that Ottawa hopes will absorb goods displaced by American tariffs can impose barriers of their own, and farm exporters must now weigh political risk in Beijing against the tariff wall in Washington. The result is a hedging problem with no clean answer, and one that falls heavily on producers of commodities such as canola, pulses and their processed derivatives.
Dairy and the politics of supply management
Looming over the CUSMA review is the perennial dispute over Canada’s supply managed dairy, poultry and egg sectors. The Trump administration has repeatedly singled out Canadian dairy, with the president citing tariffs that he says climb as high as 400 per cent on American product sold above negotiated quota limits. Washington has made expanded access to the Canadian dairy market one of its explicit demands for any renegotiated agreement, framing it as a test of Canada’s willingness to open protected sectors.
Canada, however, has effectively legislated its own red line. Bill C-202, which became law in June 2025, bars the trade minister from agreeing to increase tariff free import quotas or to lower over quota tariffs on dairy, poultry and eggs in any future trade treaty. Dairy, poultry and egg producers welcomed the measure as a guarantee against further concessions, while some grain and export oriented groups criticized it, warning that it ties Canada’s hands and signals inflexibility at exactly the moment negotiators need room to maneuver. With that constraint written into domestic law, Canadian negotiators enter the dairy portion of the CUSMA talks with less to give, and the standoff over supply management is likely to become one of the review’s hardest knots.
What the numbers say
The macroeconomic picture helps explain why both governments are willing to keep absorbing the friction. Economists tracking the 2025 and 2026 tariff cycle estimate that the measures have already trimmed Canadian gross domestic product by somewhere in the range of 1.5 to 2 per cent, a meaningful drag for an economy of Canada’s size. On the household side, analysts estimate that Canadian families are absorbing an additional 1,700 to 2,000 dollars a year in costs as tariffs work their way through prices, though the exact figure depends heavily on assumptions about how much of the burden is passed through to consumers.
The distribution of the pain is uneven. The Bank of Canada has emphasized that while the directly tariffed sectors are a small share of total output, they are concentrated in specific communities and supply chains, so the local effects can be severe even when the national numbers look manageable. Steel towns in Ontario, aluminum smelters in Quebec, forestry dependent regions in British Columbia and automotive clusters across southern Ontario all sit on the front line. The central bank has also pointed to a second order effect, in which manufacturers who buy tariffed metals face higher costs and, in some cases, respond with layoffs of their own.
There is a partial offset in the policy response. Government support programs, retaliatory tariffs that shift some demand toward domestic producers, and a Buy Canadian procurement push have all helped cushion the domestic economy, according to the Bank of Canada’s assessment. But these tools redistribute rather than eliminate the cost, and they add to public spending at a time when Ottawa is also trying to fund broader economic priorities. The longer the tariffs persist, the more these support measures shift from temporary bridges to semi permanent features of the fiscal landscape.
Voices from industry and the negotiating table
The tone from Canada’s leadership has turned notably more cautious. Carney has told Canadians not to expect a quick end to the tariffs, saying he does not anticipate a near term deal to lift the duties on steel, aluminum, autos and other sectors, and that those negotiations will instead be absorbed into the coming CUSMA review, a process expected to unfold next year. It is a marked change from the spring, when Ottawa was still working toward self imposed deadlines for a settlement. The prime minister has framed the shift as realism rather than retreat, arguing that Canada will not chase a small or symbolic deal simply to be able to announce one.
That assessment is echoed by Steve Verheul, the veteran negotiator who led Canada’s CUSMA talks during Trump’s first term. Speaking to a business audience, Verheul said he does not expect Ottawa and Washington to reach a tariff deal before the United States midterm elections in the fall. He allowed that a window could open if the administration decides it wants a political win before American voters go to the polls, saying that if that happens there is a possibility for something to come together. But he added that nothing close to a good deal for Canada has been put on the table so far, a blunt verdict from someone who knows the file intimately.
Industry groups are bracing accordingly. Steel and aluminum producers have pressed Ottawa to keep its support programs in place and to hold firm on retaliation, while manufacturers that depend on imported metal have lobbied for broader relief from both American and Canadian duties. Forestry firms are watching the August lumber determination closely, hoping the anticipated rate cut materializes. Dairy farmers, reassured by Bill C-202, are urging negotiators to treat supply management as untouchable. Exporters in agriculture, meanwhile, are asking for help navigating the widening web of Chinese trade remedies. The common thread is a call for predictability, the one thing the current standoff cannot provide.
What it means for importers and exporters
For businesses on both sides of the border, the practical takeaway from the past two weeks is that the status quo will persist longer than many had hoped. The single most valuable tool remains CUSMA compliance. Because the largest tariff carve outs, including the proposed forced labour exemption, hinge on whether goods qualify as originating under the agreement, firms that can document compliance stand to shield a substantial portion of their trade. Companies that have not fully mapped their rules of origin, or that have let certifications lapse, are exposed to duties they might otherwise avoid. Trade advisers are urging importers to treat origin documentation as a strategic asset rather than a paperwork afterthought.
Diversification is the second recurring theme, and a more difficult one. Ottawa’s push into Pacific and other markets offers exporters new outlets, but the Chinese pea starch tariff is a reminder that alternative markets come with their own political risk. Prudent exporters are spreading their exposure across several destinations rather than swapping one dependency for another, and are building tariff scenarios directly into their pricing and contracts. For importers, the calculus involves deciding how much of the tariff cost to pass through to customers, how much to absorb, and whether to reengineer supply chains toward domestic or exempt sources, each option carrying its own cost and lead time.
Cash flow and financing round out the list of near term concerns. The federal support programs, including the Business Development Bank of Canada facility for metal dependent firms and the broader fund for tariff affected businesses, are designed to bridge companies through the disruption, and eligible firms are being encouraged to apply rather than wait. Legal and customs specialists also point to the value of monitoring the administrative reviews and comment periods that shape future rates, since duties on products such as softwood lumber can move materially from one review cycle to the next. In an environment defined by uncertainty, the businesses faring best are those treating tariff management as an ongoing operational discipline rather than a crisis to be weathered once.
The road ahead
The most likely scenario, on the evidence of the past two weeks, is a grind. The CUSMA review will proceed on an annual cadence, with the substance of the tariff fight embedded inside it, and any comprehensive settlement is unlikely before the political calendar in Washington creates an incentive to move. The United States and Mexico have signalled their own bilateral engagement is continuing, which leaves Canada managing a process in which it cannot fully control the pace. In the meantime, the sectoral tariffs stay in force, the forced labour proposal advances through its comment and hearing stages, and the softwood lumber determination in August offers one of the few near term chances for concrete, if modest, relief.
For Canada, the strategic bet is that patience and diversification will strengthen its hand over time, and that a firm posture on sectoral tariffs and supply management will preserve leverage for the harder bargaining to come. For businesses, the message from Ottawa is to plan for a prolonged period of elevated duties rather than a swift return to the old rules. The deadline that came and went on July 1 did not end the trade war. It reset the clock, and it made clear that the fight over tariffs and the future of North American trade will be measured in years, not weeks.