CUSMA-compliant goods exempt from Trump’s latest tariff threat on Canada

U.S. President Donald Trump’s latest threat of a 35 per cent tariff on imports from Canada will not apply to goods that comply with the Canada-U.S.-Mexico Agreement (CUSMA), a Trump administration official told CBC News.

The 35 per cent tariff, which the U.S. president posted about on TruthSocial last night, is expected to apply to goods currently tariffed at 25 per cent, the official said.

U.S. tariffs on potash and energy are expected to remain at 10 per cent. However, no final decisions have been made by Trump.

Prime Minister Mark Carney acknowledged the announcement on Thursday night, saying that the government has “steadfastly defended Canadian workers and businesses.”

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Speaking to reporters on Friday, Trump said he’d shared the proposal with Canadian officials the day before.

“They called. I think it was fairly well-received,” he said.

He also reiterated a familiar talking point about U.S. trading partners.

“We’ve been taken advantage of for many, many years by countries both friend and foe. And frankly, the friends have been worse than the foes in many cases,” he said. “So I would say, just keep working, it’s all going to work out.”

How does the CUSMA exception work?

For an import to qualify for tariff-free treatment under CUSMA, it must comply with the agreement’s “rules of origin” — a set of standards that determine how much of the good should be produced in North America.

Even if the good meets the rules of origin, that doesn’t make it automatically exempt from tariffs. The importer still has to produce or obtain a document that certifies the origin of the goods.

There are general rules of origin, and rules of origin that are specific to certain products. Vegetables harvested in Canada or minerals mined in Canada are subject to a “wholly obtained” rule of origin.

Others are considered “originating” if they meet product-specific rules.

For example, a finished product might be classified differently under CUSMA than the materials that are used to make the product (e.g., a wooden table that is made from oak imported from outside North America.)

New deadline for trade deal

The threat of higher tariffs comes after several weeks of heightened volatility in the Canada-U.S. trade relationship, with Canadian officials hopeful that they could come to an agreement with their southern neighbours by July 21.

Carney set that date after meeting with Trump during the G7 summit in Kananaskis, Alta.

However, U.S. officials have floated different timelines for a deal without setting a specific date. Trump’s latest threat says that a 35 per cent tariff would go into effect on Aug. 1. Carney confirmed the revised deadline on Thursday evening.

“My guess is that the negotiations were not going very well, in the sense of the Americans were probably looking for Canada to put more things on the table to trade with, and were probably getting frustrated as the deadline came up,” said Mark Warner, an international trade lawyer who practises in Ontario and New York.

He suggests the U.S. is trying to turn up the pressure on Canadian officials, and that they must be realistic. 

“We think we’ve made these hard-won gains. But this is not about principle now. This is about figuring out — how do we get this guy to move off looking at us and look at someone else? And if we don’t, then we bear the consequence.”

Late last month, the U.S. president announced that he was calling off negotiations with Canadian officials, citing a digital services tax that was set to go into effect the following week.

Within a matter of days, the federal government said that it would rescind the tax in order to “advance broader trade negotiations” with the U.S., and those talks resumed.

Why Trump keeps raising supply management

In various social media posts, including the post from Thursday evening, the president raised his qualms what what he says is Canada’s “failure” to stop fentanyl from “pouring into our country.”

Fentanyl seizures have ticked up at the U.S. northern border, according to data from U.S. Customs and Border Protection, but are still much lower than those at the U.S. southern border shared with Mexico.

He also took issue with Canada’s supply-managed dairy industry — a longtime trade irritant for the United States. Parliament recently passed a law that would take supply management off the table in trade negotiations.

When CUSMA was negotiated in 2018 to replace NAFTA, Trump called the agreement — referred to as USMCA in the U.S. — “a great trade deal,” though he had raised Canada’s supply management system as an issue then, too.

The U.S. president has made several claims about Canada’s supply managed dairy systems, but they are frequently inaccurate. High tariff rates on U.S. dairy apply only if exports exceed set quotas.

Kelly Ann Shaw, a former senior White House trade adviser, said she’s not surprised that Trump continues to raise supply management as an issue.

CUSMA contains a sunset clause which says that the three countries reconvene every six years to renegotiate parts of the agreement “that may not be working the way that they were originally intended,” said Shaw.

“So that’s the complaint that you see now from the administration — we’re gearing up to renegotiate this deal, so we’re identifying things where we don’t feel like we’re being treated well.”