You would think that, with the USA and Canada being neighbours and with some shared history, there would be no issues with tariffs. However, tensions exist between the two, with President Trump making noises about Canada becoming a US state!
The 1 August 2025 deal deadline has been and gone. Canada has a free trade deal with the USA and Mexico known as the Canada-United States-Mexico agreement (“CUSMA”), so goods covered by this deal will still be at lower tariffs or tariff free. Approximately 90% of what Canada exports to the USA is covered by CUSMA. However, other goods face a tariff of 35%, with steel, aluminium, cars and car parts particularly hard hit.
The sticking point still seems to be the flow of illicit drugs such as Fentanyl (a lethal drug) from Canada to the US. Canada in turn, claims that only about 1% of the Fentanyl traffic originates in Canada.
Canada exports 75.9% of its goods to the USA, so the tariff war is causing real concern to Canadian businesses. In contrast, the USA only exports 16.8% of its goods to Canada.
With Mexico also being hit with higher tariffs on goods not covered by CUSMA, (25%), manufacturing or processing outside Canada is looking difficult. However, Canadian businesses have been making plans with 40% of exporters moving to suppliers outside the US and 28% diversifying to buyers outside the US in a move to be less reliant on US trade.
The UK may be an important partner in this respect, as it has close sovereignty and historical ties to Canada. The main inhibitor for a move to mainly UK suppliers could be the cost of transatlantic transport for goods.
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