U.S. Tariffs on Canadian Exports Decline, But CUSMA Review Looms Large
Recent data reveals a surprising drop in U.S. tariff rates on Canadian exports, yet this apparent relief may be fleeting as the critical review of the Canada-U.S.-Mexico Agreement (CUSMA) approaches. According to figures released this week, the average effective tariff rate on Canadian goods entering the United States fell to 3.1 percent in December 2025, down from 3.7 percent in November. Simultaneously, the proportion of tariff-free exports increased to 89 percent in December, slightly above the yearly monthly average of 87 percent.
A Temporary Respite or Lasting Trend?
Economists note that while Canada currently enjoys the lowest tariff rate among America's major trading partners—with others facing an average of 9.3 percent in December—this situation remains precarious. Andrew Grantham, an economist at RBC Economics, emphasized that Canada's position is favorable but uncertain, especially as the July 1 date for the CUSMA review draws near. The agreement was originally established to create a zero-tariff trading zone, making the current rates a significant burden for businesses.
Earlier estimates had projected much higher tariff impacts. Prime Minister Mark Carney suggested in September 2025 that rates stood around 5.5 percent, while other forecasts predicted approximately 6 percent. Capital Economics Ltd. even speculated last year that the effective rate could plummet to as low as 2.5 percent, indicating ongoing volatility in trade policies.
Declining Import Share and Sector-Specific Struggles
Despite lower tariffs, Canada's share of total U.S. imports experienced a notable decline. In 2025, it shrank to 11.2 percent from 12.6 percent in 2024, marking the second-largest drop among major U.S. trade partners, trailing only China's reduction from 13.4 percent to 9 percent. This contraction highlights broader trade challenges beyond tariff rates alone.
Certain industries continue to bear heavy burdens. Sectors like steel and aluminum still face steep 50 percent levies, underscoring persistent trade tensions. U.S. Trade Representative Jameson Greer recently indicated openness to revising these tariffs, but reports suggest President Donald Trump is considering more drastic measures, including potentially dismantling CUSMA to negotiate separate deals with Mexico and Canada.
Economic Forecasts and Political Dynamics
Most economic analysts, however, anticipate a continuation of the current framework. Bradley Saunders and Kimberley Sperrfechter, economists at Capital Economics, project that a modified version of CUSMA will likely be extended within the next year. They cite the upcoming U.S. midterm elections and strong business support for the pact as factors that may deter Trump from withdrawal, though threats could emerge as negotiation tactics.
Potential changes in the agreement could focus on:
- Greater U.S. access to Canada's dairy sector
- Higher North American content rules for the automotive industry, possibly emphasizing U.S.-specific requirements
- Relief from sector-specific tariffs for Canada, though existing CUSMA mechanisms may remain in place
As tariffs against Canadian goods trend downward, the looming CUSMA review casts a shadow over future trade stability. Businesses and policymakers alike are watching closely, aware that today's calm may precede a storm of renegotiation and adjustment in North American trade relations.
