Overview of Canada-U.S. Trade Relations and Tariff Changes in 2025

In 2025, Canada-U.S. trade relations have been marked by significant tariff turbulence, with both countries imposing and rescinding tariffs amid ongoing negotiations and political tensions. The U.S. initially imposed 25% tariffs on Canadian goods starting March 4, 2025, including steel, aluminum, and other sectors, with some exceptions under the Canada-United States-Mexico Agreement (CUSMA). Canada retaliated with its own 25% tariffs on about CA$155 billion of U.S. goods, targeting sectors like agriculture, consumer products, and industrial materials.

By September 1, 2025, Canada removed most of its retaliatory tariffs on U.S. goods, except for steel, aluminum, and autos, where Canadian tariffs remain at 25% due to ongoing U.S. tariffs in these sectors. The U.S. also paused tariffs on CUSMA-compliant Canadian goods from March 7, 2025, effectively exempting most trade under the agreement from tariffs, though some tariffs remain on non-compliant goods.

The tariff conflict has created economic uncertainty, with BMO outlining three scenarios for the future of Canada-U.S. trade, ranging from a "muddling through" scenario with continued tariffs but mostly intact free trade, to a worst-case "continental divide" scenario risking a Canadian recession.

Key points:

• U.S. tariffs: 25% on many Canadian goods effective March 4, 2025; paused for CUSMA-compliant goods from March 7, 2025; some tariffs remain on steel, aluminum, and autos.
• Canadian retaliatory tariffs: Initially 25% on CA$155 billion of U.S. goods starting February 2025; mostly removed by September 1, 2025, except for steel, aluminum, and autos.
• CUSMA impact: Over 85% of Canada-U.S. trade remains tariff-free due to CUSMA exemptions, but political uncertainty looms with renegotiations expected in 2026.
• Economic outlook: Ongoing tariff disputes threaten economic growth, with potential recession risks depending on negotiation outcomes.

This situation reflects a complex and evolving trade relationship influenced by political decisions, legal challenges, and strategic economic interests on both sides of the border.