Canada-US Trade Relations Update: Disputes, Agreements & Impact on Businesses
Canada-US Trade Relations Update is dominated by a sudden, intense escalation of tariff disputes that threaten to destabilize the world’s largest bilateral trading partnership.
This political and economic friction has moved beyond routine trade management, introducing significant and unpredictable costs for businesses operating across the border.
We are currently navigating a tumultuous period where policy volatility is the single greatest risk.
The core of the issue lies in the current US administration’s aggressive use of tariffs on Canadian goods, often citing national security or border issues.
In response, Canada has been forced to implement swift, proportionate countermeasures, escalating the situation into a de facto, low-level trade war.
This ongoing uncertainty demands immediate attention and risk mitigation from all cross-border enterprises.
Why Are Tariffs Surging Despite the USMCA Agreement?
The crucial question many business leaders are asking is: why the tariff surge when the United States-Mexico-Canada Agreement (USMCA) is in effect?
The answer lies in the strategic, extra-legal methods employed by the US administration to impose duties outside the USMCA framework.
The Use of Non-Trade Authorities
The US administration has invoked the International Emergency Economic Powers Act (IEEPA), and Section 232 of the Trade Expansion Act of 1962, bypassing standard trade dispute mechanisms.
These powers allow the US to impose tariffs citing justifications like a “national emergency” at the border or threats to national security.
In August 2025, the US increased tariffs on Canadian goods not USMCA-compliant to 35%, citing border issues, a dramatic escalation.
This reliance on non-trade authorities means traditional USMCA dispute resolution channels are often circumvented or severely hampered.
The tariffs create immediate financial pain for Canadian exporters and US importers.
Consequently, Canadian firms must either absorb the cost, passing it to US consumers, or cease exporting, disrupting integrated North American supply chains immediately.
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Canada’s Retaliatory Measures
Canada has not remained passive, implementing its own set of retaliatory tariffs on US goods in response to the initial US levies imposed in March 2025.
These countermeasures targeted approximately $30 billion in US imports, including items from appliances and apparel to specific food products.
However, in a strategic de-escalation move in September 2025, Canada removed its retaliatory tariffs on most US imports, provided those goods qualify as USMCA originating.
This tactical measure aimed to protect Canadian consumers and manufacturers reliant on US inputs, while maintaining counter-tariffs on steel, aluminum, and certain non-compliant autos to keep pressure on key US sectors.
How Does the Softwood Lumber Dispute Undermine Bilateral Trust?
The long-standing Softwood Lumber Dispute remains a central and contentious point in the Canada-US Trade Relations Update, proving that even robust trade agreements cannot solve deeply entrenched industry conflicts.
This dispute serves as a constant, painful reminder of the fragility of the overall relationship.
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The Latest Duty Hikes
The US Department of Commerce recently announced the final results of its sixth administrative review, significantly increasing anti-dumping and countervailing duties on Canadian softwood lumber imports.
For many producers, the combined duty rate now sits above 35%, with some major Canadian companies facing rates as high as 47.65% (as of July 2025).
To compound the pressure, the US administration announced in October 2025 a new Section 232 tariff of 10% on imported softwood timber and lumber.
This tariff is in addition to the already elevated anti-dumping and countervailing duties, creating a crippling combined tariff burden for Canadian exporters and spiking lumber costs for US homebuilders.
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Industry and Legal Response
The imposition of these duties immediately impacts the lumber market, essentially operating as an enormous tax on Canadian companies.
Canada has aggressively responded by launching legal challenges under the USMCA’s Chapter 10 binational panel process, specifically targeting the legitimacy of the administrative reviews.
This situation is like trying to build a new house while two people keep fighting over the price of the foundational timber: the entire construction project slows, costs skyrocket, and the final structure becomes less certain.
The dispute prevents stable pricing and predictable supply chains, severely hindering the North American construction sector.
What Real-Time Impacts Are Businesses Experiencing on the Ground?
The current volatility shown in the Canada-US Trade Relations Update is not just an abstract policy problem; it has clear, measurable, and destructive effects on businesses and consumers in both countries.
Companies are forced into costly, complex risk management strategies simply to move product across the border.
Supply Chain Disruptions and Costs
Canadian businesses relying on US inputs are dealing with elevated input costs from the original retaliatory tariffs, even with the September exemptions.
In the US, importers of Canadian steel, aluminum, and lumber face significantly higher costs, which are ultimately passed to consumers.
Canadian exports to the US fell nearly 16% in April 2025 alone, demonstrating the tariffs’ immediate chilling effect on commerce.
Toronto-based auto parts supplier had to implement a $1.2 million line of credit to pre-pay tariffs on specialized US-made steel tubing before they could be used in Canadian assembly plants.
This increased their operational costs and required delaying a planned capital investment.
Investment and Hiring Slowdowns
The prevailing uncertainty is causing businesses to delay critical investment decisions and slow hiring.
Statistics Canada reported that in the third quarter of 2025, about one in six Canadian exporters planned to delay investment or expansion due to trade uncertainty.
Furthermore, the Canadian unemployment rate rose to 7.1% in August 2025, the highest rate since before the pandemic, with employment growth stalling significantly since February 2025.
A Seattle-based software company with Canadian development offices indefinitely postponed plans to open a new facility in Vancouver, opting instead to consolidate growth in a US location, citing the unpredictability of the bilateral trade environment and fear of future cross-border taxation.
This illustrates how trade anxiety directly impacts job creation in both nations.
| Canada-U.S. Trade Indicators (Year-to-Date 2025, Jan-Jul) | Exports (U.S. Bil.) | Imports (U.S. Bil.) | Trade Balance (U.S. Bil.) |
| U.S. Trade with Canada (USMCA Goods) | $51.0 | $121.2 | -$70.3 |
| U.S. Trade with Mexico (USMCA Goods) | $0.0 | $162.5 | -$162.5 |
| Canada’s Trade Impact (Approx. YTD) | -16% drop in exports (April 2025) | Rising Input Costs | Uncertainty High |
Source: U.S. Census Bureau, Trade in Goods with USMCA; Statistics Canada reports (Adjusted for recent tariff actions).
The current Canada-US Trade Relations Update paints a clear picture of volatility and disruption, driven by non-traditional trade policies.
Despite the core USMCA agreement, targeted tariffs are functioning as a political lever, imposing real costs on businesses and workers alike.
Over 85% of Canada-US trade remains tariff-free under USMCA rules, but the targeted duties on key sectors like steel, aluminum, and autos create systemic risk far greater than their percentage would suggest.
This relationship is too important to be governed by mercurial, unilateral actions. Sustained pressure from industry groups is now essential to compel both governments back to the negotiating table for sector-specific stability.
Will the economic damage be enough to force a more rational, predictable trade environment?
We invite you to share your experience on how these trade tensions are affecting your business operations in the comments below.
Frequently Asked Questions
What is the USMCA and how does it relate to the current tariffs?
The USMCA (United States-Mexico-Canada Agreement) is the free trade agreement replacing NAFTA.
It keeps most trade tariff-free but the current tariffs are imposed outside the USMCA framework, using US laws like Section 232, which relate to national security, making them harder to challenge under the agreement.
Are USMCA-compliant goods completely safe from tariffs?
For most product categories, USMCA-compliant goods are exempt from the most recent widespread “national emergency” tariffs.
However, certain key sectors like steel, aluminum, and, crucially, softwood lumber, remain subject to additional, specific tariffs and duties regardless of USMCA compliance.
What is the ‘trade balance’ and why is it often negative for the US?
The trade balance is the difference between a country’s exports and imports.
The US often runs a negative balance (deficit) with Canada because the value of goods imported from Canada is greater than the value of goods exported to Canada, a pattern the current US administration seeks to change.
How is the current trade dispute impacting the auto sector?
The auto sector faces major uncertainty due to tariffs on steel, aluminum, and the threat of tariffs on non-USMCA-compliant vehicles.
This increases costs for manufacturers and consumers in both countries, threatening the highly integrated North American supply chain.
