U.S. President Donald Trump says the U.S. will impose 35 per cent tariffs on Canada starting Aug. 1 in a letter posted on his social media site Truth Social.Evan Vucci/The Associated Press
U.S. President Donald Trump said he would impose 35-per-cent tariffs on imports from Canada starting Aug 1, upping pressure on Ottawa as it seeks to secure a deal with the White House in the coming weeks.
In a letter posted on his website Truth Social on Thursday evening, Mr. Trump said he would increase the tariffs that were imposed on Canada in March and currently stand at 25 per cent, with notable carve outs. Mr. Trump justified the levies – which don’t apply to goods that comply with continental free trade agreement rules – as an effort to force Canada to do more to address U.S complaints about fentanyl trafficking and illegal migration.
“If Canada works with me to stop the flow of Fentanyl, we will, perhaps, consider an adjustment to this letter. These Tariffs may be modified, upward or downward, depending on our relationship with Your Country,” Mr. Trump wrote.
The Canadian government is making a final push to reach a trade and security deal with the United States. Ottawa and Washington had been aiming for a self-imposed July 21 deadline, but in a social media post on Thursday evening, Prime Minister Mark Carney said he would be working towards a revised Aug 1 deadline.
U.S. President Donald Trump said on Thursday the U.S. would impose a 35% tariff on imports from Canada next month and planned to impose blanket tariffs of 15% or 20% on most other trade partners.
Reuters
Canada has said it wants all tariffs removed, but Mr. Trump has given no indication he’s willing to relent. In his letter, he said he would increase levies on Canada if it retaliated against the U.S.
Mr. Trump has sent similar letters to nearly two dozen other trade partners in recent days, outlining the tariff levels they will face if they do not strike deals with Washington before Aug. 1.
After the imposition of the so-called fentanyl tariffs in March, the U.S. exempted all Canadian goods that comply with the rules of origin outlined in the United States-Mexico-Canada Agreement (USMCA) – significantly reducing the impact of the tariffs. The letter made no mention of this. Both Bloomberg and the Wall Street Journal reported that the White House intended to keep the exemption in place.
If Mr. Trump proceeds with his threat but the USMCA exemption remains in place, the effective U.S. tariff rate on Canadian goods would be considerably lower than 35 per cent.
These tariffs referred to in the letter are separate from the sectoral tariffs Mr. Trump has imposed on steel, aluminum and automobiles.
In a post on X, Mr. Carney defended Canada’s record, saying the country has “made vital progress to stop the scourge of fentanyl” in North America. “We are committed to continuing to work with the United States to save lives and protect communities in both our countries.”
He added that Canada is looking after its interests too: reducing internal barriers to trade and planning big economic projects.
“We are building Canada strong. The federal government, provinces and territories are making significant progress in building one Canadian economy. We are poised to build a series of major new projects in the national interest. We are strengthening our trading partnerships throughout the world.”
The Canadian government, which announced $1.3-billion over six years in new border-security measures last December, including helicopters, surveillance gear and more staff, has repeatedly disputed the significance of fentanyl smuggled into the U.S., noting it comprises a tiny fraction of illegal imports into U.S. territory.
It also appointed a fentanyl czar to co-ordinate efforts to disrupt illegal production and distribution.
A July 1 report by the Manhattan Institute, a U.S. think tank, said illegal fentanyl smuggled into the U.S. from Canada plays a minor role in U.S. fentanyl trafficking.
“Whatever the merits or drawbacks of tariffs on imports from Canada − a question of economics and international relations that goes far beyond our analysis − such actions cannot be justified as part of a pragmatic and data-informed response to the threat of fentanyl to the United States,” the institute said.
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Alongside complaints about fentanyl, Mr. Trump highlighted Canada’s supply-managed dairy market and complained about the U.S. trade deficit with Canada.
“The flow of Fentanyl is hardly the only challenge we have with Canada,” Mr. Trump said.
“Canada charges extraordinary Tariffs to our Dairy Farmers up to 400 per cent – and that is even assuming our Dairy Farmers even have access to sell their products to the people of Canada. The Trade Deficit is a major threat to our Economy, and indeed our National Security,” he said.
Canada imposes duties of more than 200 per cent on U.S. dairy imports, but it’s only applied to shipments above a negotiated tariff-free quota in the North American trade pact.
Canada is in a different position from most other countries receiving letters as it was exempt from the so-called “reciprocal” tariffs Mr. Trump announced in April then paused for three months. This was because Mr. Trump had already imposed tariffs on Canada, Mexico and China, citing concerns over border security.
New fentanyl data undercut White House’s portrayal of Canada’s role in U.S. drug crisis
Since then, Mr. Trump has imposed a number of sectoral tariffs that affect Canada disproportionately, including a 50-per-cent tariff on steel and aluminum and a 25-per-cent tariff on automobiles, with a carve-out for U.S. parts. Earlier in the week, Mr. Trump said he would also impose a 50-per-cent tariff on copper and 200 per cent on pharmaceuticals.
The financial market response to Mr. Trump’s Thursday evening broadside has been relatively muted. The Canadian dollar dipped by around a third of a cent against the Greenback, and is hovering around 0.73 U.S. cents. Canadian and U.S. stocks pulled back, with the S&P/TSX Composite and the S&P 500 both down around half a percentage point in Friday morning trading.
It can be difficult to gauge the economic impact of Mr. Trump’s tariff threats, as he has frequently made big threats only to reverse course, water them down or punt them to a later date.
The impact of the 25-per-cent “fentanyl tariffs” currently in place has been tempered by the fact that products that comply with the USMCA rules continue to cross the border tariff-free – unless they are subject to other sectoral tariffs.
“Right now, around half of Canadian exports to the US are USMCA compliant. That share has been rising quickly. Estimates indicate that this share could be easily raised to 80 per cent to 90 per cent,” Derek Holt, head of capital market economics at Bank of Nova Scotia, wrote in a note to clients.
“A 35 per cent tariff on the 10 per cent to 20 per cent share of Canadian exports to the US that would be difficult to be made USMCA compliant would amount to an effective tariff rate of between about 4 per cent and 7 per cent and likely on the lower end of that scale. This is in addition to sectoral tariffs (primarily metals). Therefore, if he were to go ahead, it could still be a meaningful hit,” Mr. Holt wrote.
Both the “reciprocal” tariffs and the “fentanyl” tariffs were imposed using the International Emergency Economic Powers Act. Last month, a U.S. court ruled that Mr. Trump’s use of IEEPA was illegal, which would undercut the basis of many of Mr. Trump’s tariffs – although not his sectoral tariffs.
This ruling was paused until an appeal can be heard by a higher court.