- Canada enforces 25% tariffs on U.S. auto imports over CUSMA compliance, effective April 9.
- Tariffs target U.S. auto exports after Washington’s duties on Canadian cars.
- Canada warns it may expand tariffs to $155B in U.S. goods if trade measures continue.
Canada has implemented 25% tariffs on vehicles imported from the United States that do not meet the terms of the Canada-U.S.-Mexico Agreement (CUSMA), effective from April 9. The tariffs also apply to the non-Canadian and non-Mexican components used in vehicles that otherwise meet CUSMA requirements.
These countermeasures come in direct response to the United States’ decision to levy a 25% tariff on Canadian made automobiles on 3rd April. The Canadian government stated that these measures will stay in place until the U.S. removes its tariffs against Canada’s auto sector.
Canadian retaliation adds pressure on cross-border vehicle trade
The new tariffs were announced by Finance Minister François-Philippe Champagne on April 8, saying Canada had to respond to what it was calling unjustified economic measures from the United States. The Canadian government accused the US of unfairly targeting its auto sector, which has over 500,000 employees across the country.
The new Canadian tariffs target fully assembled U.S.-born vehicles that aren’t CUSMA compliant and penalizes the non-Canadian and non-Mexican content in CUSMA compliant vehicles. So, if a vehicle fits under the CUSMA rules, parts from outside Canada or Mexico will still be subject to a 25% tariff once imported into Canada.
The new tariffs will be accompanied by a remission framework to help support domestic production and incentivizing investment within Canada. The coming days are expected to include details of the framework. The Canadian government also introduced a special exemption for residents of Campobello Island, New Brunswick, who depend on a U.S road route year-round to travel to mainland Canada. Residents of the island won’t have to pay tariffs on U.S. household goods previously imposed.
Tariff escalation follows earlier U.S. measures on Canadian exports
In recent weeks, tensions between Canada and the U.S. have escalated. The U.S. imposed a 25% tariff on a variety of Canadian goods on March 4, and an added 10% tariff on Canadian energy and potash exports. Soon after, however, these tariffs were altered to only apply to goods not included under CUSMA.
The U.S. added another 25 percent tariff on Canadian steel and aluminum products on March 12. These actions led to the April 3 decision to impose a 25% tariff on Canadian automobiles. On March 4, Canada retaliated by imposing its own tariffs on the U.S starting with a 25 per cent tariff on U.S. imports worth $30 billion. Additional tariffs of $12.6 billion on U.S. steel, and $3 billion on U.S. aluminum, and a range of other goods totaling $14.2 billion were implemented by March 13.
In 2024, vehicle imports to Canada from the U.S. totaled $35.6 billion. The Canadian government has stated that it is prepared to escalate further with the latest countermeasures targeting this sector. State officials said if the U.S. continues to move in its current trade policy direction, the scope of tariffs could expand to cover $155 billion in U.S. imports.
Minister Champagne repeated that Canada will continue to respond to what it believes to be unjustified tariffs, and emphasized the government’s commitment to protecting domestic industries. Meanwhile, international reactions to recent U.S. trade actions have broadened. On 4th April, China announced a 34 percent tariff on all U.S. imports starting April 10. In addition, the European Union has put back in place tariffs on some American goods such as bourbon and motorcycles, with an additional €18 billion in tariffs potentially taking effect by mid-April.
