New tariffs on Canadian goods up pressure on USMCA talks

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President Donald Trump ordered new tariffs on approximately $20 billion of imports from Canada, in a July 20 proclamation.

Trump invoked Section 338 of the Tariff Act of 1930, also known as the Smoot-Hawley Tariff Act, for the first time in that law’s history. The new tariffs, which are at an ad valorem rate of 50% for covered items imported into the U.S., are set to take hold at 12:01 a.m. on Aug. 19. In ordering the tariffs, Trump cited Canadian tariffs imposed on U.S. automobiles, as well as Canadian retaliation against U.S. alcohol, which were put in place in response to broad tariffs on Canadian products Trump imposed last year.

The new tariffs exempt Canadian energy, potash (a fertilizer component), fish, imports already subject to Section 232 tariffs (steel, aluminum, copper, lumber, timber, derivative products of those materials, auto parts), and critical minerals.

Unlike the U.S. tariffs imposed on Canadian products last year (and then invalidated by a February 2026 Supreme Court ruling), these tariffs apply to goods normally exempt from duties by the U.S.-Mexico-Canada Agreement (USMCA), the update to the North American Free Trade Agreement that Trump pushed for and signed off on during his first term.

The Trump administration formally put the USMCA into an annual review process on July 1. This means the free trade agreement, which governs approximately $2 trillion in annual trade business imports and exports between the U.S., Canada and Mexico, is subject to possible change this year and every year moving forward until sunset in 2036, or unless a long-term agreement can be reached between the three governments.

Trump and senior administration officials have repeatedly said the U.S. could instead leave the USMCA, using an unusual provision that allows any country to leave the multilateral treaty with six months’ notice. In its stead they say they would pursue bilateral agreements with Mexico and Canada, with tariffs that could track along most-favored nation rates. This approach could increase long-term costs for businesses with supply chains that cross the Canadian or Mexican borders and possibly decrease U.S. export competitiveness. The White House estimates Canada’s retaliatory tariffs on automobiles cost U.S. manufacturers $5.6 billion over one year.

U.S. Trade Representative Jamieson Greer signaled in recent congressional testimony that the administration will not maintain the current USMCA status quo, one way or the other.

“I’m hopeful that before the end of the year, we can have at least options for President Trump and the leaders of Canada and/or Mexico to consider potential interim arrangements, or things that Canada can do on the one hand, and Mexico can do on the other hand, to strengthen enforcement, to improve their commitments toward us, and to make sure that we're managing all of the trade issues," Greer told the Senate Finance Committee on July 22.

In his testimony Greer re-emphasized changes to rules of origin, the trade deficit with Mexico, and tightening of Mexican labor and environmental laws as priorities for the Trump administration in its negotiations. So far the USTR has formally engaged in USMCA-related talks with Mexico; though the U.S. Trade Representative and his Canadian counterparts have publicly described contact with each other in June and July.

Greer added that despite the latest trade volley between the U.S. and Canada, he was assured by the Canadian government that there would not be a further round of retaliation.

“They did not say that they're going to retaliate to what we're doing,” Greer told the Senate panel, describing a July 21 conversation with his Canadian counterpart, after concerns were raised about further escalation of trade tensions with one of the U.S.’s largest trade partners.

Domestic sentiment in Canada could rapidly change that calculus. Ontario Premier Doug Ford, a prominent member of Canada’s conservative party, said in a July 21 social media post that, “Team Canada needs to be united, standing up to President Trump and hitting back tariff for tariff until we get a fair trade deal.”