U.S.–Canada tariffs are once again at the forefront of international trade concerns as Donald Trump’s strategy to reshape global trade faces a new legal obstacle in a U.S. federal appeals court. At the same time, the Canadian government is preparing for a potential increase in tariffs on its goods and services, particularly if a new agreement is not reached by the August 1, 2025 deadline.
Trump’s Tariff Strategy and Deadline Pressure
The U.S. president set an August 1, 2025 deadline for countries to negotiate new trade agreements with the United States. Frameworks have been established with Japan, Vietnam, Indonesia, the Philippines, and the United Kingdom. However, a deal with Canada remains unresolved. “We don’t have a deal with Canada, we haven’t been focused on it,” Trump told reporters last week.
In an official letter to Prime Minister Mark Carney, Trump warned that the U.S. could impose a 25% tariff on Canadian imports if no agreement is reached. While the White House emphasized these tariffs would not apply to goods already protected under the Canada-U.S.-Mexico Agreement (CUSMA), the situation has triggered concern among government officials, business leaders, and industries that rely heavily on cross-border trade in goods and services.
Canada’s Different Position Compared to Other Countries
Recent U.S. deals with the European Union and Japan have raised questions about what kind of trade agreement Canada might secure. Both of those countries accepted 15% across-the-board tariffs and pledged to invest hundreds of billions of dollars into the American economy. However, Carney has signaled that Canada is negotiating from a different position, due to its deep economic integration and energy exports to the U.S.
“America needs Canadian energy,” Carney said. Unlike Europe and Japan, Canada already has a free-trade agreement in place through CUSMA, which allows most Canadian products to enter the U.S. market tariff-free, provided they meet rules-of-origin requirements.
Jonathan O’Hara, a trade lawyer with McMillan LLP, noted that broad tariffs like the ones imposed on the EU and Japan would be difficult for Canada to accept, as the country’s economy is significantly more dependent on access to U.S. markets.
Focus on Sector-Specific Tariffs
Canada’s biggest concern is the high sectoral tariffs imposed on materials such as steel, aluminum, and copper. Trump has raised global tariffs on steel and aluminum imports to 50% and plans to do the same for copper in August. While countries like the U.K. have negotiated a 25% tariff on certain goods, there’s little indication that Canada will receive a better outcome.
Carlo Dade, director of international policy at the University of Calgary, said the U.S. is raising the cost of market access globally, and Canada will likely face similar price adjustments. Canadian officials are focused on preserving the carveouts granted by CUSMA, which allow many manufactured goods to enter the U.S. tariff-free. Business leaders say losing those protections would severely impact their operations.
Dan Kelly, president of the Canadian Federation of Independent Business, stressed the importance of maintaining zero tariffs on goods currently covered under CUSMA. “The sectoral tariffs on cars, copper, aluminum, and steel are definitely hurting,” he said, “but for most manufactured goods, there is a pathway to have them effectively tariff-free.”
Economic Outlook Amid Tariff Uncertainty
Despite the trade tension, Canada’s economy showed short-term resilience in June 2025, with 83,000 jobs added and the unemployment rate dropping to 6.9%. Inflation rose slightly to 1.9%, remaining just below the Bank of Canada’s 2% target.
Most economists expect the Bank to hold interest rates steady in July, though two quarter-point cuts are projected by the end of the year to help offset the effects of the ongoing tariff dispute. Bank of Canada Governor Tiff Macklem acknowledged the growing challenges, saying he is now less optimistic about the economic outlook.
Conclusion: A Deal or More Uncertainty?
With just days remaining before the August 1 deadline, Canadian officials are downplaying the likelihood of a last-minute trade agreement. Prime Minister Carney described the negotiations as entering an “intense phase,” while Trump indicated that Canada was not a current priority.
Even if no final deal is reached, many business leaders argue that maintaining CUSMA’s tariff protections is critical. A worst-case scenario, experts say, would be the collapse of CUSMA and the imposition of a blanket 15% tariff order on all Canadian goods entering the U.S. — a move that could severely harm Canada’s economy and trade relationship with its closest partner.
For now, the Canadian government, businesses, and financial institutions remain watchful as this high-stakes trade standoff unfolds between the two countries.