Crucial exemption allows majority of Canadian and Mexican goods to be shipped to US without tariffs
By ROB GILLIES
TORONTO (AP) — Last week, U.S. President Donald Trump increased tariffs on Canadian goods to 35%. However, the majority of goods are exempt from these tariffs due to a key exemption for Canada and Mexico.
Goods that adhere to the 2020 United States-Mexico-Canada Agreement trade pact, negotiated by Trump during his first term, are not subject to the tariffs.
Canadian Exports and Tariffs
Canada’s central bank reports that 100% of energy exports and 95% of other exports are compliant with the USMCA. Nearly 90% of Canadian exports accessed the U.S. market duty-free in April, according to the Royal Bank.
Canadian Prime Minister Mark Carney stated that the commitment to the core of USMCA means that over 85% of Canada-U.S. trade remains tariff-free. This has positioned Canada well compared to other trading partners.
Canadian and Mexican companies can claim preferential treatment under the USMCA based on the origin of the products.
Mexican Tariffs and Trade
Trump announced a 90-day negotiation period with Mexico, another key trading partner. The current 25% tariff rates remain in place for goods not covered by the USMCA.
Under the USMCA, more than 84% of Mexico’s trade with the U.S. is tariff-free. However, the deal is set for review next year, with discussions of renegotiation on the horizon.
Preserving the USMCA will be crucial for both Canada and Mexico as a disruption to the agreement could have significant economic impacts.
Challenges and Opportunities
Trump’s sector-specific tariffs, such as the 50% tariff on steel and aluminum imports and a 25% tariff on auto imports, have affected various Canadian industries. Despite these challenges, Canada remains rich in natural resources and has a skilled labor force.
As the trade war unfolds, the risk to the USMCA remains high, creating uncertainty in business decisions.
Carney highlighted the need to reassess the investment thesis for attracting investments to Canada if access to the U.S. market becomes limited.
While Canada faces challenges from U.S. trade actions, there are opportunities for growth and development in other sectors.
Associated Press writer Fabiola Sánchez in Mexico City contributed to this report.
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