The Port of Vancouver in April, 2025. A new study finds U.S. trade policy toward Canada is three times more restrictive than the country’s average tariff rate.Isabella Falsetti/The Globe and Mail
In the face of punishing U.S. duties on most of the world, Canadians have taken comfort in our relatively low tariff rate, thanks to exemptions provided under the North America trade deal.
But a new study finds U.S. trade policy toward Canada is three times more restrictive than the country’s average tariff rate, which Ottawa regularly touts as the lowest in the world.
While the average tariff on Canadians imports was around 4 per cent in October, the overall burden to U.S. consumers from steep tariffs on key products such as steel and automobiles was equivalent to a 12-per-cent across-the-board tariff, according to a new study published by the National Bureau of Economic Research.
The study, which examines duties collected at the most detailed commodity level in trade data, presents a Trade Restrictiveness Index tariff rate. The TRI tariff translates the patchwork of U.S. exemptions and sectoral tariffs into a single number: a uniform tariff rate that would have the same distortionary impact on U.S. consumers as the current policy mix.
“A few very high tariffs create more distortions than many moderate tariffs with the same average rate,” writes author Michael Waugh, an economist and monetary adviser at the Federal Reserve Bank of Minneapolis. “These results imply that policy assessments based on average tariffs may be misleading.”
Canada stands out as the starkest example of the gap between average tariffs and the TRI tariff, he writes. While most Canadian goods enter the U.S. tariff-free because of USMCA exemptions, “economically important categories face very high tariffs” and these create substantial distortions that average tariffs fail to capture.
Chinese car maker Chery eyes expansion into the Canadian EV market
Trump drops tariff threats against allies opposed to U.S. control of Greenland
The U.S. has imposed a topline 35-per-cent “fentanyl tariff” on all Canadian goods but allows for a carve-out for products certified under USMCA, which applied to close to 90 per cent of Canadian exports to the U.S. in October.
However, under section 232 of the Trade Expansion Act of 1962, the Trump administration slapped a 25-per-cent tariff on automobiles and a 50-per-cent tariff on steel and aluminum and derivative products, all of which Canada is a major supplier of.
“It’s quite wrong to conclude that Canada has the ‘best deal’ on trade with the U.S.,” said Jim Stanford, an economist and director of the Centre for Future Work, in an e-mail, referring to the report’s findings. “Canada’s extreme dependence on the U.S. market, the legacy of 35 years of continental restructuring, makes us uniquely vulnerable – perhaps the most vulnerable of any country.”
Decoder is a weekly feature that unpacks an important economic chart.