(Bloomberg) — Canada will remove its retaliatory tariffs on a long list of US products that comply with the existing North American trade deal, seeking to lower tensions with the White House.
Prime Minister Mark Carney announced the decision Friday after a meeting with his cabinet, confirming an earlier report from Bloomberg News.
Most Read from Bloomberg
The government is changing its tariff policy to align more closely with US measures. That means a broad range of US-made consumer products will no longer face a 25% tariff when imported into Canada, as of Sept. 1, as long as they’re shipped in compliance with the provisions of the US-Mexico-Canada Agreement.
But Canada is keeping 25% import taxes on US steel and aluminum, as well as tariffs on US cars and trucks. President Donald Trump has imposed levies on all of those sectors.
Carney indicated the move is meant to prepare the ground for the review of USMCA, which is expected to begin in the coming months.
Canadian Prime Minister Mark Carney and US President Donald Trump.Photographer: Chip Somodevilla/Getty Images
It’s a major policy shift for Canada, which was one of the only countries to swiftly retaliate against US protectionism — something that irritated Trump and Commerce Secretary Howard Lutnick. It comes a day after Carney and Trump spoke by phone, their first publicly acknowledged conversation in weeks.
A White House official, speaking on condition of anonymity, said the administration welcomed the move and that the US looked forward to continuing discussions on trade and national security matters.
Lutnick, who is one of the administration’s trade negotiators, told the Canadians that the counter-tariffs were a barrier to full talks and that it left them in a poor negotiating position, a person familiar with the discussions said, speaking on condition of anonymity. Lutnick pressed the Canadians to drop the tariffs to clear the way for negotiations. The US gave nothing in return, the person said.
The Canadian dollar extended gains on the Bloomberg News report of the prime minister’s decision and was trading at C$1.3838 per US dollar as of 12:36 p.m. in Toronto.
Consumer Tariffs
Canada’s first round of counter-tariffs in early March placed a 25% tax on about C$30 billion ($21.7 billion) of US goods that included orange juice, wine, clothing, motorcycles — the list was hundreds of pages long. Those will now be lifted, as long as the imports comply with USMCA.
Story Continues
The second round came in response to Trump’s decision to put tariffs on foreign steel and aluminum. Then-Prime Minister Justin Trudeau opted for tariffs against US metals products, including tools, as well other consumer goods such as sports equipment, hitting an additional C$30 billion in annual US shipments. Those were implemented right before Carney took over.
“Canada and the United States have re-established free trade for the vast majority of our goods,” Carney said at a news conference in Ottawa. “Canada will retain our tariffs on steel, aluminum and autos as we work intensively with the US to resolve the issues there.”
The move should reduce inflationary pressures, and “further opens the door for the Bank of Canada to resume its rate cutting cycle,” Royce Mendes, head of macro strategy at Desjardins, said by email.
Carney campaigned and won a national election by promising an aggressive approach that would inflict “maximum pain” on the US — and in the midst of that election he retaliated against Trump’s automotive tariffs with similar levies on US-manufactured vehicles. But as head of the government, he has taken a more skeptical view of counter-tariffs than Trudeau did.
In April, his finance minister carved out a series of exemptions, allowing businesses to bring in certain items from the US tariff-free, and announced that for automakers such as General Motors Co. and Stellantis NV would be able to apply for tariff relief if they keep their manufacturing and investment in Canada.
When the White House doubled tariffs on steel and aluminum to 50%, Carney threatened to retaliate, but never did. Canada also didn’t change its counter-tariffs when the White House increased its so-called fentanyl tariffs on Canada to 35% from 25% on Aug. 1.
At that time, the White House also maintained a USMCA exemption that allows a majority of Canadian exports to the US to escape tariffs. Economists at Bank of Nova Scotia have estimated that the effective US tariff rate on Canadian goods is less than 7%.
Carney said the average tariff rate on Canadian goods is a little more than 5.5%. “It’s not what we used to have,” he said. “Nobody has a deal with the United States that they used to have.”
Counter-tariffs haven’t caused significant inflation problems in Canada. Statistics Canada said this week the consumer price index rose 1.7% in July from a year earlier, below the Bank of Canada’s 2% inflation target.
“The retaliatory tariffs haven’t added much to Canadian inflation, or deterred the Trump administration from imposing tariffs on Canada, but we could benefit by dropping them if that helps win some concessions on US tariffs on Canada,” Avery Shenfeld, chief economist with Canadian Imperial Bank of Commerce, said by email.
The economic stakes of a trade deal with the US are higher for Canada than for most other countries. Last year, three-quarters of Canada’s merchandise exports went to the US, led by oil and gas. Exports represent about a third of the country’s gross domestic product.
At the same time, the northern nation is a large market for US exporters — about $440 billion in US goods and services last year, more than any other country. Excluding energy products, the US has a trade surplus with Canada.
–With assistance from Eric Martin and Erik Hertzberg.
(Updates with comments from Carney and other new details, beginning in the second paragraph.)
