Canada still has among the lowest effective tariff rate of any U.S. trade partner

While some have lamented the lack of a trade deal between Canada and the United States, particularly following the imposition of a 35% tariff on non-CUSMA-compliant goods, the fact remains that Canada has among the lowest effective tariff rates of any U.S. trading partner.

This is because the percentage of Canada-US trade that is CUSMA-compliant has surged.

According to RBC Economics, the effective U.S. tariff rate on goods imported from Canada is 1.9% as of May. By contrast, Mexico’s effective rate is 4.3%, India’s is 5.7%, the Euro Area is 6.5%, Japan is 14%, and China is 45.6%. The world average as of May was 8.7%.

Most of those rates are doubtlessly higher now, given U.S. trade ‘deals’ with Japan and the European Union that raise the U.S. tariff rate to 15%. While Canada faces a higher rate (35%), that rate only applies to Canadian exports that are not CUSMA-compliant. Since U.S. tariffs were first imposed, Canadian exporters have worked to ensure CUSMA-compliance, and 92% of Canadian exports to the United States are now duty-free as a result.

RBC Economics notes that Canada now has a stronger relative position compared to other U.S. trade partners, as most other countries and economic blocs cannot circumvent tariffs as easily as we can. Ironically, they note the risk to Canada could be from America’s self-inflicted economic damage:

“The concern remains, though, that US tariff hikes have been so large —and uncertainty so high surrounding their announcements—that US economic growth will slow with negative implications for close U.S. trade partners like Canada.”

Thus, while some lament Canada’s lack of a deal with the U.S., there is little rush to sign a new deal given that we already have one in place. As a corollary, the renegotiation of CUSMA will likely be the ‘main event,’ with the Trump Administration almost certain to try and cut down the scope of the agreement.

Spencer Fernando