So far, Canada’s economy has had a major “shield” in the form of key exemptions from U.S. President Donald Trump’s tariffs, but if his new 50 per cent ones go into effect at midnight, it would be a “crack” in that shield for businesses and exporters, industry groups are warning.
On July 24, Trump imposed a broad global tariff on most U.S. trading partners, but Canada and Mexico maintained a duty-free exemption for most goods traded under the Canada-U.S.-Mexico Free Trade Agreement (CUSMA).
Those exemptions have buffered Canada against the worst impacts of the trade war.
“If those new tariffs are implemented, there will be a crack in the CUSMA shield,” said Jasmin Guenette, vice-president of national affairs at the Canadian Federation of Independent Business.
“The CUSMA shield will no longer exist as before. And who knows what could happen after?”
Around two in five Canadian exporters said they currently export a product to the U.S. that would fall under the scope of the new incoming tariffs, a CFIB survey said last week.
Of these, more than three-quarters (77 per cent) said they expect to lose revenue if the tariffs go ahead and more than one in three (35 per cent) said they stand to lose at least half or more of their revenues.
The Section 338 tariffs would affect nearly $28 billion in annual Canadian exports to the United States, representing more than five per cent of Canadian goods exports to the U.S., said Dennis Darby, president of Canadian Manufacturers and Exporters.
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“A tariff of that magnitude would make many covered Canadian products commercially uncompetitive in the U.S. market and could effectively shut some Canadian manufacturers out of their largest export market,” Darby said.
These tariffs would be in addition to the sectoral levies Canada already faces in the aluminum, steel, lumber and motor vehicle sectors.
Canadian steel and aluminum sectors face steep tariffs of 50 per cent, which has meant that exports of the metals to the U.S. have declined sharply since the trade war started, a recent Bank of Canada report warned.
By February, lumber exports were roughly 20 per cent below 2024 averages, the report added.
The 50 per cent tariff would be “another significant hit” for Canadian workers and businesses, Derek Nighbor, president of the Forest Producers Association, said.
“Our forest products markets are deeply connected. We need an outcome that reduces barriers, strengthens North American supply chains, and creates a durable path forward on softwood lumber. Our sector is ready to work with the federal government to get there,” Nighbor said.
In 2025, just seven Canadian products — good transport vehicles, aluminum wire, aircraft and spacecraft parts, flat rolled iron or non-alloy steel products, motor vehicle parts and accessories, unwrought aluminum and passenger vehicles — accounted for more than half (56 per cent) of all duties paid by U.S. importers for Canadian goods, according to Export Development Canada.
The reach of the new tariffs would be “much broader,” Darby said.
“Manufacturers of beverages, plastics, electrical machinery and equipment, furniture, paper and packaging materials, building materials, apparel, sporting goods, and many other products would face the new 50 per cent tariff,” Darby said.
While the “overall economy should hold” if the 338 tariffs hit, some “targeted sectors” will feel the impact disproportionately, a recent Royal Bank of Canada report said.
“Targeted sectors related to plastics, electrical machinery, furniture and home appliance manufacturing are likely to experience slowdowns,” the report said.
This is because only 3.7 per cent of total imports of these products come from Canada, the report added, making it easier for the U.S. to pivot away or find domestic suppliers.
“That’s different than tariffs on, say, aluminum where Canada made up the majority of U.S. imports, and American importers don’t have alternative suppliers or the capacity/infrastructure to domestically produce the good,” the RBC report said.
Tariffs — and the related uncertainty — are already impacting investment and jobs in Canada, a recent survey from Canadian Manufacturers and Exporters shows.
“Nearly three-quarters of manufacturers reported negative impacts from the metal tariffs, while one-third were delaying or cancelling Canadian investments,” Darby said.
“Manufacturers are reviewing contracts, shipments, sourcing, hiring and capital investments because they do not know what conditions they will face,” he added.
Smaller businesses, which have less room to maneuver or pivot without deep pockets, are looking at whether they will need to absorb the impact of the tariffs, Guenette said.
“Many businesses are in the situation where they’re paying the U.S. tariffs because they want to make sure that they keep their clients. They make those sales, even though this has a significant impact on their revenue and on their profits,” he said.
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