Canada Removes Retaliatory Tariffs to Match USMCA Exemptions, Aiming to Reset Trade Relations with the U.S.

The Canadian government will drop retaliatory tariffs, aligning with the US exemptions for goods under the United States-Mexico-Canada Agreement (USMCA), Prime Minister Mark Carney announced on Friday.

Carney stated that Canada would implement a carve-out similar to the one provided by the US, which shields most Canadian goods from punitive duties as per the 2020 free trade deal. He emphasized that Canada currently holds the best trade agreement with the United States, albeit different from its previous arrangement, but still more favorable than any other nation’s.

Following a phone conversation between Carney and US President Donald Trump on Thursday, as well as a Cabinet meeting on Friday, the announcement was made. The move aims to restore trade negotiations between the two countries. The USMCA will undergo review in 2026, with Carney highlighting it as a unique advantage for Canada amidst indications that the US is charging for market access.

Carney asserted that the US commitment to the core principles of the USMCA maintains the US’s average tariff rate on Canadian goods at one of its lowest levels, and that over 85% of Canada-US trade remains free of tariffs. Canadian and Mexican companies can claim preferential treatment under the USMCA.

Initially, former Prime Minister Justin Trudeau imposed retaliatory tariffs in response to US tariffs, but before these tariffs were implemented, the Trump administration exempted goods covered by the free trade deal. Most imports from Canada and Mexico continue to be protected by the USMCA, although US Commerce Secretary Howard Lutnick has suggested that President Trump intends to renegotiate the pact.

Preserving the free trade pact is crucial for both Canada and Mexico, with over 75% of Canada’s exports and more than 80% of Mexico’s exports heading to the US. However, despite the USMCA, Trump has announced sector-specific tariffs that still impact the Canadian economy, such as a 50% tariff on steel and aluminum imports.

Carney stated that Canada and the US have reestablished free trade for the majority of their goods, but Canada will retain its tariffs on steel, aluminum, and autos while working intensively to address these issues. Carney previously rescinded Canada’s plan to tax US technology firms following Trump’s suspension of trade talks with Canada over these plans, which he deemed “a direct and blatant attack on our country.”

Carney rejected any suggestion that Canada is appeasing Trump, instead noting that Canada is merely matching the US’s actions. Lana Payne, president of Unifor, Canada’s largest private sector union, characterized Carney’s announcement as Canada backing down and argued that the country should not do so unless the US drops all punitive tariffs. Payne emphasized that Trump’s attacks on auto, steel, aluminum, and forestry sectors are harming Canadian workers in real time, and withdrawing counter-tariffs is not a peace offering; it only encourages further US aggression.