President Trump has sent a letter to Canada informing the country of a new 35% tariff on goods imported into the U.S., effective August 1. Canada’s reciprocal tariff rate, set on April 2, was 25%.
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At the same time, the policies of the United States-Mexico-Canada Agreement (USMCA) largely shield Canadian goods sent to the U.S. from tariffs, according to Royal Bank of Canada (RBC).
In 2024, 38% of Canadian exports to the U.S. were USMCA-compliant. That’s likely because the paperwork and extra steps necessary for compliance require time and effort. Last year, most U.S. tariff rates on Canadian goods were 0%, reducing the need for Canadian companies to apply for USMCA benefits.
Canada Set to Maximize CUSMA/USMCA Benefits
In March, 50% of Canadian exports to the U.S. were USMCA-compliant following Trump’s tariff hike. That figure will probably jump significantly because of the new 35% tariff rate.
RBC estimates that over 94% of Canadian exports to the U.S. are in compliance with USMCA. “Other U.S. tariff measures on steel and aluminum products, and on motor vehicles still apply, but we estimate roughly 86% of Canadian exports should ultimately be able to access the U.S. market duty free under current trade rules,” said RBC.
Canadian investors appear to be aware of the benefits provided by the USMCA, with the iShares MSCI Canada ETF (EWC) down by only 0.51% during the past week.
