Instead, Canada remains subject to earlier tariffs tied to U.S. concerns over fentanyl and illegal immigration, including a 25% levy on non-USMCA-compliant goods and 10% on energy exports.
Roughly 40% of Canada’s exports currently qualify as USMCA-compliant, but that share could rise to 80–90% as more firms adjust, according to a report from TD. The White House has said those tariffs could be reduced if sufficient progress is made on cross-border issues.
The move is part of Trump’s so-called “reciprocal tariff” strategy, which includes steep duties of 20% or more on dozens of countries the U.S. accuses of unfair trade practices.
The White House said the tariffs, effective April 5, are designed to punish nations with large trade surpluses and those not aligned with U.S. national security interests.But opposition quickly mounted in Washington.
Just hours after the announcement, the U.S. Senate passed legislation in a narrow 51–48 vote to block the new tariffs on Canada, with four Republicans joining Democrats to advance the bill. The legislation aims to terminate the national emergency order Trump used to justify the tariffs, which he linked to fentanyl imports and border security.
While largely symbolic, the vote highlights growing concern among lawmakers about the economic fallout from Trump’s tariff strategy. The bill is expected to stall in the House of Representatives, where Republican leadership has signalled no intention of bringing it to a vote.
While political pushback is already brewing south of the border, it does little to shield Canada from tariffs already in motion.
Trump also confirmed that a 25% tariff on all foreign-made vehicles would go ahead as planned, taking effect Thursday. While the tariff will only apply to the non-U.S. content within each vehicle, the announcement has sparked concern in Canada’s auto sector, which relies heavily on global supply chains.
According to the White House, the auto tariff will only apply to the non-U.S. content in each vehicle—but with the Canadian auto industry relying heavily on global parts, the impact could still be significant.
“I would not want to be a Ford, GM, Stellantis, Toyota or Honda executive right now trying to deal with this,” BMO Chief Economist Douglas Porter said during a speech in Toronto last week. “I would be surprised if all seven auto plants we have in this country survive this, if these tariffs stay in place for long.”
Prime Minister Mark Carney paused his re-election campaign to convene an emergency cabinet meeting in Ottawa, calling the situation “a fundamental change to the international trading system.”
“We’re going to fight these tariffs with countermeasures,” Carney told reporters on Parliament Hill. “We are going to protect our workers and we are going to build the strongest economy in the G7. In a crisis it’s important to come together and it’s essential to act with purpose and with force, and that’s what we’ll do.”
He confirmed that Canada is prepared to launch further retaliatory measures and warned that the White House has signalled more tariffs could be coming—potentially targeting pharmaceuticals, lumber, and semiconductors.
Markets tumble on tariff shock
Financial markets around the world reacted swiftly to Trump’s sweeping tariff announcement.
U.S. equity futures plunged after the market close, with S&P 500 futures dropping 3%, Nasdaq 100 futures tumbling more than 4%, and Dow futures sliding about 1,000 points, or 2%. Analysts said the scope of the tariffs—especially the unexpected “reciprocal” rates of 20% or more for many countries—was worse than the Street had feared.
“Investors are giving the reciprocal duties a big thumbs down,” wrote BMO’s Sal Guatieri.
He estimates the weighted average U.S. import tariff is now up by 23 percentage points—a level far beyond what BMO had built into its previous economic forecasts. Guatieri expects this will lead to further downward revisions in U.S. GDP growth and another bump in inflation projections, especially on electronics and manufactured goods from Asia.
“The Fed will have a challenging time weighing the polar impacts of tariffs on growth and inflation, and will likely bide its time, before ultimately ceding to the weaker growth path and resuming rate cuts in the fall,” he wrote.
Those dual risks—slower growth and rising inflation—are also top of mind in Canada.
In its latest report, TD Economics warned that the new U.S. tariff regime could drive Canadian inflation above 3% by summer, even as economic activity slows under the weight of trade uncertainty.
That combination puts the Bank of Canada in a difficult position. While TD sees scope for at least 50 basis points of rate cuts this year to ease borrowing costs, it cautions that the central bank’s options are limited in the face of externally driven shocks.
“Don’t expect a substantial drop in interest rates,” TD noted, saying the Bank has “limited capacity” to push against a policy shock of this nature. “But there is room for at least 50 basis points of cuts to ease financing costs.”
Visited 379 times, 63 visit(s) today
Bank of Canada Donald Trump douglas porter federal reserve sal guatieri stock market tariffs trade war USMCA
Last modified: April 3, 2025