Background on the Situation
Canada has been unable to reduce the 35% tariff imposed by the United States on Canadian imports that do not meet the rules of origin under the USMCA (United States-Mexico-Canada Agreement).
Former President Donald Trump set this 35% tariff for Canada, which took effect on the previous Friday from a rate of 30%. This move contrasts with agreements made by the European Union, Japan, and South Korea, who negotiated a 15% tariff rate in exchange for investing billions of dollars.
Canada’s Trade Relationship with the US
Canada is the second-largest trading partner of the United States, with exports totaling $198.224 billion and imports amounting to $171.987 billion in the first half of 2025.
Tariff Disparities and Reasons
While Mexico negotiated a lower tariff rate, Canada opted for retaliatory measures instead. As of August 1, 2025, the US will impose a 35% tariff on Canadian products sent to the US, in addition to sectoral tariffs.
Trump mentioned in a statement on July 10, 2025, that Canada failed to collaborate with the US on issues like drug trafficking (especially fentanyl) and migration. The tariffs are applied under the International Emergency Economic Powers Act (IEEPA) due to perceived lack of cooperation from Canada.
The IEEPA allows the President to regulate imports in response to declared emergencies related to unusual and extraordinary threats to national security, foreign policy, or the economy.
Projected Revenue from Tariffs
On Thursday, Commerce Secretary Howard Lutnick projected that the US could generate over $50 billion monthly in tariff revenues, a significant increase from the $30 billion recorded the previous month. This rise is expected as higher tariffs come into effect.
Trump’s Claims on Tariff Growth
On Wednesday, Trump claimed that the growth would be unprecedented and that the US is collecting “hundreds of millions of dollars in tariffs.” However, he could not provide a specific figure, admitting that the final amount is still unknown as tariff rates evolve.
Key Questions and Answers
- What is the issue at hand? Canada failed to negotiate a lower tariff rate with the US, unlike other trading partners.
- Why did the tariff rate differ between Mexico and Canada? The five-percentage-point difference stems from Canada’s retaliatory measures following previous tariffs imposed by the US.
- What is the purpose of the tariffs? The tariffs aim to address concerns regarding drug trafficking, specifically fentanyl, and migration issues, as per the IEEPA.
- How much revenue is expected from these tariffs? The US projects over $50 billion monthly in tariff revenues, a substantial increase from previous months.
