Canada To Drop Many Retaliatory Tariffs In Olive Branch To Trump

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 is expected to announce the decision Friday after a meeting with his cabinet. The government will change its tariff policy to align more closely with US measures, according to people familiar with the matter, speaking on condition they not be identified in order to discuss the issue.

That means a broad range of US-made consumer products will no longer face a 25% tariff when imported into Canada, as long as they’re shipped in compliance with the provisions of the US-Mexico-Canada Agreement. 

But the government is likely to keep 25% import taxes on US steel and aluminum products, as well as its tariffs on US automobiles. President Donald Trump has imposed levies on all of those sectors. 

The move is also meant to prepare the ground for the review of the USMCA, which is expected to begin in the coming months. Canada’s counter-tariff regime will now emphasize the importance of that agreement, the people said.

Still, it’s a major policy shift from Canada, which was one of the only countries to swiftly retaliate against US protectionism — something that has 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. 

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 and motorcycles. 

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, hitting about C$30 billion in annual US shipments. Those were implemented right before Carney took over as prime minister. 

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. 

But the White House also maintained a USMCA exemption that means many Canadian exports to the US aren’t subject to that tariff. Economists at Bank of Nova Scotia have estimated that the effective US tariff rate on Canadian goods is less than 7%. 

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.