Canada's Move Resets Trade Talks With US

Canada is dropping retaliatory tariffs to match US tariff exemptions for goods covered under the United States-Mexico-Canada trade pact, Prime Minister Mark Carney announced Friday. Carney said Canada will include the carve-out that the US has on Canadian goods under the 2020 free trade deal that shields the vast majority of goods from the punishing duties. "Canada currently has the best trade deal with the United States. And while it's different from what we had before, it's still better than that of any other country," Carney said. Carney and President Trump spoke on the phone Thursday and Carney met with his Cabinet on Friday before making the announcement, reports the AP.

The move is designed to reset trade talks between the two countries. The USMCA is up for review in 2026, and Carney called the trade pact a unique advantage for Canada at a time when it is clear that the US is charging for access to its market. Carney said the commitment of the US to the core of USMCA means the US average tariff rate on Canadian goods remains one of its lowest, and that over 85% of Canada-US trade continues to be free of tariffs. Canadian and Mexican companies can claim preferential treatment under the USMCA.

Former Prime Minister Justin Trudeau initially put on retaliatory tariffs in response to US tariffs, but before the US tariffs were applied the Trump administration exempted goods covered by the free trade deal. Most imports from Canada and Mexico are still protected by the USMCA, but Commerce Secretary Howard Lutnick has said, "I think the president is absolutely going to renegotiate USMCA." Preserving the free trade pact will be critical for Canada and Mexico. More than 75% of Canada's exports go to the US, while more than 80% of Mexico's exports go there.

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Trump has announced some sector specific-tariffs that do apply for Canada despite the USMCA—known as 232 tariffs—which are having an impact on the Canadian economy. There is a 50% tariff on steel and aluminum imports, for example. "Canada and the United States have reestablished free trade for the vast majority of our goods. Canada will retain our tariffs on steel, aluminum and autos as we work intensively to resolve the issues there," Carney said.