Three days proved not enough for the United States and Canada to overcome objections and reach a new trade agreement.
Relations between the countries took a sharp turn over the weekend after last-minute negotiations failed to produce a deal, triggering the promised new round of 50% U.S. tariffs on Canadian goods and setting the stage for retaliation from Canada.
Each side blames the other for the breakdown:
- U.S. officials said Canada wanted more concessions after the two sides had moved closer to agreement.
- Canadian Prime Minister Mark Carney said Washington introduced last-minute demands that were unfair and would limit Canada’s ability to make independent trade decisions.
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What Happens Now, And What’s Next?
The new tariffs, which took effect just after the stroke of midnight on Saturday, affect a wide range of Canadian goods, including apparel, toys and jewelry. The targeted list of Canadian imports is estimated to be worth about $20 billion. While that figure is significant for exposed businesses, it’s only about 5% of Canada’s exports to the United States, and the affected goods represent about 0.6% of total U.S. imports.
- The new duties are the first use of Section 338 of the Tariff Act of 1930, which allows for tariffs of up to 50% on imports from specific countries, so the current rate is the maximum for covered products under this law.
The new tariffs also stack on top of earlier U.S. tariffs on Canada, sector-specific duties on steel, aluminum, autos and lumber, and broader tariff actions, adding another layer of cost and complexity. On Monday, President Donald Trump threatened to raise tariffs to 50% for cars, trucks and auto parts from Canada on January 1, indicating more turbulence to come.
Similarly, Canada has promised to respond with “dollar for dollar” retaliatory tariffs on selected U.S. goods beginning September 8. The Canadian duties are expected to target U.S. steel, dairy products, appliances, agricultural equipment, pulp and paper, electronics and some goods already covered in earlier tariff rounds.
ICYMI: Canadian Sales Volume Study Reveals $1.46 Billion USD In Sales
How Does USMCA Factor In?
Importantly, the new duties apply to many products regardless of their eligibility under the United States-Mexico-Canada Agreement. In July, the U.S. declined to renew the trilateral agreement reached under the first Trump administration in 2020, triggering a new round of negotiations and uncertainty. Ultimately, if the U.S., Canada and Mexico don’t agree to extend the USMCA, it will terminate in 2036.
“Uncertainty around USMCA is itself a business challenge. Branded merch companies need confidence in North American trade rules so they can plan sourcing, manage costs and keep products moving for customers,” says Alok Bhat, PPAI’s research and public affairs lead.
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Suppliers and distributors alike have benefited from the stability provided under the USMCA, as it helps ensure consistent pricing and product availability for their clients. Companies may now need to reassess whether USMCA qualification delivers enough savings to justify the compliance burden, while also reviewing supplier contracts, pricing terms and country-of-origin documentation.
PPAI will continue to monitor the issue and provide industry-relevant updates. Look to PPAI Media for timely updates throughout the year, as well as opportunities to raise your voice in support of industry priorities.
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