Canada is removing 25% tariffs on U.S. consumer goods that follow USMCA rules

Canada is officially dropping its 25% retaliatory tariffs on a wide list of U.S. consumer goods that meet the terms of the US-Mexico-Canada Agreement, in an attempt to cool things down with the Trump White House.

Prime Minister Mark Carney will make the announcement after a cabinet meeting this Friday, according to Bloomberg. The policy change means that any American products that comply with USMCA rules will enter Canada tariff-free, ending a chunk of the trade war that’s been dragging on since Donald Trump’s first term.

But while consumer products are getting a pass, Canada isn’t touching the 25% import taxes on steel, aluminum, or U.S.-made vehicles. Those will stay. Trump had slapped duties on all of those sectors. Carney isn’t lifting a finger on them yet.

The rollback is happening right before the USMCA is set to be reviewed, and officials say the change is about signaling the importance of that agreement. That’s the same deal Trump renegotiated years ago to replace NAFTA, and both countries are about to go back to the table.

The latest move is a dramatic policy change for Canada, one of the few countries that didn’t hesitate to hit the U.S. back when Trump went protectionist. It also came one day after Carney and Trump finally got on the phone, something that hadn’t happened publicly in weeks.

The White House has been irritated with the Canadian response to U.S. tariffs for years. Commerce Secretary Howard Lutnick has especially been vocal, and this rollback shows Carney is done playing games on low-priority goods.

Carney backs off tariffs Trudeau left behind

This whole mess started with two rounds of countermeasures from Canada. The first wave came in March, when Trudeau’s government slapped a 25% tax on about C$30 billion, or roughly $21.7 billion, worth of American imports. The list included orange juice, wine, clothes, and even motorcycles.

That was followed by a second round of tariffs after Trump went after foreign metals. Ottawa responded with fresh taxes on U.S. steel and aluminum, plus a mix of other consumer items. Those measures hit another C$30 billion of American products, and that happened just as Carney was moving into office.

Carney didn’t waste time on the campaign trail. He ran on a trade war platform, promising “maximum pain” for the U.S. if Washington kept messing with Canada’s economy.

When Trump put tariffs on Canadian-built cars, Carney answered by taxing American auto exports right back. But since becoming prime minister, Carney has taken a different approach from Trudeau. He’s not all about escalation anymore.

In April, Carney’s finance minister gave businesses room to breathe. A bunch of goods got exempted from tariffs. Some automakers, including General Motors and Stellantis, were told they could apply for relief if they kept building and investing inside Canada. It was the first sign that Carney was shifting gears from campaign talk to government strategy.

Then Trump doubled down. The White House raised tariffs on steel and aluminum to 50%. Carney warned of retaliation but didn’t follow through. Later, on August 1, the U.S. bumped its so-called fentanyl tariff on Canadian products from 25% to 35%, and again, Ottawa made no change. Despite the pressure, Canada’s tariff playbook stayed exactly the same.

Even with all these back-and-forth moves, the impact on everyday Canadians has been minimal. The retaliatory tariffs haven’t spiked prices. This week, Statistics Canada reported that the consumer price index only climbed 1.7% in July compared to the same time last year. That’s still under the Bank of Canada’s 2% inflation target. So, while Trump has ramped up the economic pressure, the damage hasn’t filtered into the average Canadian household.

Trump’s side hasn’t completely shut off trade either. Thanks to an existing USMCA exemption, most Canadian exports to the U.S. are still flowing without extra taxes. Analysts at Bank of Nova Scotia estimate that the actual U.S. tariff rate on Canadian goods is under 7%. So while things look tense, the border hasn’t turned into a full-on economic warzone.

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