Canada and the United States, two of the world’s most deeply entwined trading partners, are once again making headlines as both nations recalibrate their tariff regimes in a bid to stabilize cross-border commerce and prepare for future negotiations. In a move that drew both relief and scrutiny, Canadian Prime Minister Mark Carney announced on Friday, August 29, 2025, that Canada would drop most of its retaliatory tariffs on U.S. imports, aligning more closely with exemptions under the United States-Mexico-Canada Agreement (USMCA). The decision, as reported by The Fulcrum and echoed across industry news outlets, marks a significant shift in the ongoing trade chess match between Ottawa and Washington.
Effective September 1, 2025, Canada will lift the majority of the 25% counter-tariffs it imposed in March on $29.8 billion worth of U.S. goods. This sweeping rollback means over 85% of Canada-U.S. trade will now be tariff-free, restoring much of the open market spirit that has long defined the relationship between the two neighbors. Yet, the story is far from over. Tariffs remain stubbornly in place for strategic sectors—steel, aluminum, automobiles, lumber, and copper—reflecting the unresolved tensions and ongoing negotiations that continue to shape the North American trade landscape.
Prime Minister Carney was candid about the rationale behind the move, telling reporters that the adjustment was a “strategic step to preserve Canada’s trade advantage and set the stage for the USMCA review in 2026.” According to The Fulcrum, the Canadian government sees this as a way to maintain leverage while demonstrating goodwill, especially as the USMCA’s next formal review looms on the horizon. Goods covered under the USMCA, known as CUSMA in Canada, are now largely exempt from tariffs, signaling a renewed commitment to the free trade principles at the heart of the agreement.
For U.S. exporters, the changes are immediately tangible. Starting September 1, tariffs will be lifted on a wide array of U.S. consumer and agricultural products. Dairy and poultry—milk, cheese, butter, chicken, turkey, and eggs—are among the beneficiaries, as are grains, rice, citrus fruits, berries, and melons. Beverages like coffee, tea, wine, beer, and spirits, along with cosmetics, toiletries, condiments, protein powders, and plastic building materials, are also set to cross the border tariff-free. As The Fulcrum notes, these removals represent a strategic pivot toward restoring trade relations and aligning with USMCA provisions.
However, the U.S. has not been idle. In August, Washington raised tariffs on Canadian steel and aluminum to 35% for non-USMCA-compliant goods, a significant jump that underscores the ongoing friction in these sectors. Energy and critical minerals from Canada are now subject to a 10% tariff, while autos and lumber face continued scrutiny and duties pending further negotiations. Despite these sticking points, the average U.S. tariff rate on Canadian goods stands at 5.6%—the lowest among America’s trading partners. Over 85% of bilateral trade remains tariff-free, a testament to the enduring integration of the two economies.
Yet, the effects of the recent trade skirmishes have been felt on both sides of the border. From January to June 2025, Canadian imports of U.S. goods declined by approximately $2.86 billion compared to the same period in 2024—a 1.5% drop. The hardest-hit sectors include automotive parts and vehicles, where tariffs have disrupted supply chains, causing procurement delays and cost volatility. Canadian manufacturers have also faced higher input costs for steel and aluminum, prompting some to shift sourcing to non-U.S. suppliers. Retailers report longer lead times and rising costs for consumer electronics and packaged goods, with many pivoting to private-label or Canadian-made alternatives. Even agricultural products like dairy, pork, and beef have seen reduced imports, particularly outside USMCA quota limits.
The impact isn’t limited to goods. Canadian travel to the United States has plummeted in 2025, with automobile crossings down 33% in June compared to the previous year, and air travel dropping 22% year-over-year. Same-day excursions fell by 40.3% in May, and overnight travel was down 34.3%. The Fulcrum highlights that over half of Canadians who had planned U.S. trips in early 2025 changed their plans due to tariff announcements and political rhetoric. Reports of Canadian tourists being detained at U.S. border crossings have further chilled enthusiasm. The U.S. tourism industry is projected to lose up to $29 billion in 2025, with Canadian travelers accounting for a significant portion of that shortfall. Many Canadians are now opting for destinations like Mexico and the Caribbean, reshaping North American tourism flows.
Despite these challenges, the agricultural trade relationship remains robust. U.S. farmers still rely heavily on exports to Canada, with dairy exports alone exceeding $8 billion annually. Canada and Mexico together account for over 40% of U.S. dairy export volume, underscoring the importance of maintaining open access to Canadian markets for American producers. As The Fulcrum points out, this access is vital for managing supply, stabilizing prices, and ensuring farm profitability in the U.S.
As for the broader trade balance, the United States continues to run a deficit with Canada. In 2025, U.S. exports to Canada are projected at $178.2 billion, while imports from Canada are estimated at $211.4 billion, resulting in a trade deficit of approximately $33.2 billion. Energy imports—especially crude oil and natural gas—remain the primary drivers of this imbalance. Still, experts caution against viewing the deficit as inherently harmful. The U.S.-Canada trade relationship is deeply integrated, with Canadian inputs supporting U.S. manufacturing and energy sectors. The U.S. also maintains a surplus in services, offsetting some of the goods deficit, and both economies benefit from the synergy and interdependence fostered by decades of free trade.
The USMCA continues to offer mutual benefits. For the U.S., the agreement has expanded access to Canada’s dairy market and strengthened auto manufacturing rules. For Canada, it has preserved critical dispute resolution mechanisms and protected cultural industries. Recent tariff removals and diplomatic overtures suggest a renewed effort to balance trade interests, though strategic sectors remain contentious and negotiations ongoing.
This week’s developments come against a backdrop of shifting global trade winds. The European Union, for example, has proposed eliminating tariffs on U.S. industrial goods in exchange for a reduction in American tariffs on European cars and auto parts—a reminder that the world’s major economies are all seeking new equilibrium in a time of uncertainty. Meanwhile, the U.S. automotive industry is seeing a resurgence, with President Trump crediting his economic policies—including tariffs on imported vehicles and auto parts—for major investments and job growth by Detroit automakers.
For Canadian and American businesses and consumers alike, the latest round of tariff adjustments brings both relief and new questions. With most tariffs gone but a few key sectors still in play, all eyes will be on the next phase of negotiations as North America’s trade future hangs in the balance.
As the dust settles on this latest chapter, one thing is clear: the Canada-U.S. trade relationship, while occasionally turbulent, remains a cornerstone of economic prosperity and strategic partnership for both nations.
